Posted by William Byrnes on August 15, 2014
Posted in FATCA | Tagged: FATCA, Russia | 1 Comment »
Posted by William Byrnes on August 11, 2014
Distance Education Workgroup September 18 – 20 Workshop and Best Practices Finalization
The Distance Education Work Group will meet at William Mitchell September 18 – 20 to complete a four year task consisting on hundreds of hours and input by more than 50 law schools from all tiers, and law publishers, of the Recommended Best Practices for Legal Education Leveraging Distance Learning Technologies. There will as year before some show and tell by law professors of newest legal education integrated technologies being leveraged for courses, some social time to build relationships across schools, and … completion of the Best Practices Recommendations.
The Work Group has been meeting thrice annually, AALS plus a Fall and Spring report drafting and discussion workshop, supplemented by best practice subgroups’ online discussions. About half the law schools have attended through a professor or Dean / Associate Dean, and approximately 50 from all tiers have provided continuous input for the drafting process.
Register to attend the workshop (there is no cost) at Event Brite: https://www.eventbrite.com/e/working-group-for-distance-learning-in-legal-education-fall-2014-meeting-registration-12051364957 or contact William Byrnes (williambyrnes@gmail.com)
Posted in Uncategorized | Tagged: Distance education, Legal education, online education | Leave a Comment »
Posted by William Byrnes on August 11, 2014
In its summer time Tax Tips 9-2014, the IRS provided 5 tax tips to taxpayers who start a new business during 2014.
1. Business Structure. The IRS stated that taxpayers should choose the business type for the new business. Some common types of entities include sole proprietorship, partnership, S corporation, Limited Liability Company (LLC) and C corporation (normally just referred to as a ‘corporation’). The type of business chosen will determine the IRS form(s) that must be used to annually report information and to determine tax owing to the IRS.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The type of taxes a business pays usually depends on which type of business the taxpayer chose to set up.
3. Employer Identification Number. A taxpayer may need to get an EIN for federal tax purposes in order to file the tax form necessary for the business type.
4. Accounting Method. An accounting method is a set of rules that determine when to report income and expenses. A business must use a consistent method. The two that are most common are the cash method and the accrual method. Under the cash method, income is reported in the year received and expenses are deducted in the year paid. Under the accrual method, income is reported in the year earn, regardless of when payment was actually made, and expenses are deducted in the year incur, regardless of when paid.
5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. Beginning in 2014, the maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.
For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the Employer Shared Responsibility provision.
Posted in Taxation | Tagged: Business, c corporation, EIN, IRS, LLC, partnership, proprietorship, s corporation | Leave a Comment »
Posted by William Byrnes on August 8, 2014
Revenue Procedure 2014-47 updates the Withholding Foreign Partnership (WP) and Withholding Foreign Trust (WT) agreements applicable to foreign partnerships and trusts that wish
to enter into a WP or WT withholding agreement with the IRS under §§1.1441-5(c)(2)(ii) and (e)(5)(iv).
Under Chapters 3 and 4, Application Procedures and Overview of Requirements for –
The procedure also contains the new –
download for free –> LexisNexis® Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA)
Reporting Forms?
If a foreign partnership has U.S. partners, the foreign partnership is generally required to file Form 1065 with a Schedule K-1 to report each U.S. partner.
If a foreign trust is a grantor trust with U.S. owners, the foreign trust is required to file Form 3520-A, Annual Information Return of a Foreign Trust with a U.S. Owner, and to provide statements to a U.S. owner, as well as each U.S. beneficiary who is not an owner and receives a distribution.
What Entities Are Eligible to Execute a WP or WT Agreement?
The WP agreement and WT agreement may be entered into by a foreign partnership and a foreign trust.
With respect to an FFI, the WP agreement and WT agreement may only be entered into by an FFI that agrees to satisfy the requirements and obligations of
1. a participating FFI (including a reporting Model 2 FFI),
2. a registered deemed-compliant FFI (including a reporting Model 1 FFI and a nonreporting Model 2 FFI treated as registered deemed-compliant), or
3. a registered deemed-compliant Model 1 IGA FFI (as defined in section 2 of the WP agreement or WT agreement).
An FFI that is a certified deemed-compliant FFI (including a nonreporting IGA FFI may enter into a WP agreement or WT agreement if the FFI meets and agrees to assume the obligations of, and to be treated as, a participating FFI (including a reporting Model 2 FFI), a registered deemed-compliant FFI (including a reporting Model 1 FFI or a nonreporting Model 2 FFI treated as registered deemed-compliant), or a registered deemed-compliant Model 1 IGA FFI.
An NFFE or an FFI that is a retirement fund (as defined in section 2 of the WP agreement or WT agreement) may also apply to enter into a WP agreement or WT agreement.
What Is the 2014 Effective Date of Execution of the Agreement?
What Is the Effective Date After 2014?
For calendar years after 2014, applications for WP or WT status received on or before March 31 of the calendar year, if approved, will be effective January 1 of that calendar year. Applications for WP or WT status received on or after April 1, if approved, will be effective January 1 of the following calendar year and the entity must be in compliance with the WP Agreement beginning January 1.
Withholding Requirements?
Chapter 4: FATCA
Section 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an FFI, unless the FFI agrees to and complies with the terms of an FFI agreement to satisfy the obligations specified for a participating FFI, is deemed to meet these requirements of a deemed-compliant FFI, or is treated as an exempt beneficial owner.
Section 1472(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an NFFE unless such entity provides a certification that it does not have any substantial U.S. owners, provides information regarding its substantial U.S. owners, or an exception to these requirements otherwise applies.
A participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (other than a reporting Model 1 FFI or registered deemed-compliant Model 1 IGA FFI) will
satisfy its requirement to withhold under sections 1471(a) and 1472(a) with respect to account holders of the FFI that are entities by withholding on withholdable payments made to
nonparticipating FFIs and recalcitrant account holders under the FFI agreement, or an applicable Model 2 IGA. See the FFI agreement, §1.1471-5(f), and the applicable Model 2 IGA for the withholding requirements that apply to withholdable payments made to account holders of the FFI that are individuals treated as recalcitrant account holders.
A reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI will satisfy its requirement to withhold under section 1471(a) with respect to its account holders by withholding on withholdable payments made to nonparticipating FFIs to the extent required under the applicable Model 1 IGA. A withholding agent (including a participating FFI or registered deemed-compliant FFI) that is required to withhold on a withholdable payment must report the payment on Form 1042- S, Foreign Person’s U.S. Source Income Subject to Withholding.
A participating FFI (including a reporting Model 2 FFI) and certain registered deemed-compliant FFIs must, for a transitional period, report certain information about accounts it maintains that are held by nonparticipating FFIs. A withholding agent (including an FFI with respect to payments made to an NFFE that were not already reported with respect to a U.S. account or U.S. reportable account (as defined under the applicable Model 1 or Model 2 IGA) is also required to report withholdable payments made to an NFFE (other than an excepted NFFE) with substantial U.S. owners on Form 8966, FATCA Report, even though no withholding is required.
Chapter 3
A withholding agent is required to deduct and withhold a tax equal to 30 percent on any payment of U.S. source fixed or determinable annual or periodical (FDAP) income that is an amount subject to withholding made to a foreign person. A lower rate of withholding may apply under the Code, the regulations, or an income tax treaty. Generally, a withholding agent must also report the payments on Forms 1042-S, regardless of whether withholding is required.
Coordination of Withholding and Reporting Requirements under Chapters 3 and 4.
With respect to a payment that is subject to withholding under chapter 4, a withholding agent may credit any tax withheld under chapter 4 against its liability for any tax due with respect to the payment under chapter 3. A withholding agent may use a single Form 1042-S to report information required under both chapters 3 and 4 with respect to a withholdable payment of U.S. source FDAP income subject to withholding under chapter 4 and for which a credit against the beneficial owner’s chapter 3 liability, if any, may be claimed.
Thus, a withholding agent that reports on Form 1042-S a withholdable payment that has been withheld upon under chapter 4 may provide certain information about the beneficial owner of the payment for purposes of chapter 3 on the same Form 1042-S. With respect to a withholdable payment of U.S. source FDAP income that is not subject to withholding under chapter 4 and that is an amount subject to withholding (or reporting) under chapter 3, a withholding agent is also required to report the applicable chapter 4 exemption code in addition to the other information required to be reported on Form 1042-S.
What Are the Changes to the WP Agreement and the WT Agreement?
The revenue procedure revises and updates the WP and WT agreements to coordinate with the withholding and reporting requirements of chapter 4, and based on the IRS’ experience in dealing with these entities since the WP and WT agreements were first published in 2003.
Additionally, because a WP or WT will be required to assume primary withholding responsibility for chapter 4 purposes, the revised WP agreement and WT agreement expand the scope of payments for which an entity can act as a WP or WT to reportable amounts (as defined in section 2 of the WP or WT agreement, which includes withholdable payments). Thus, a WP or WT need not provide its withholding agent with a nonqualified intermediary withholding certificate and withholding statement for reportable amounts not subject to chapter 3 withholding that are allocable to partners, beneficiaries, or owners that are U.S. non-exempt recipients. A WP or WT will be required to report partners, beneficiaries, or owners that are U.S. non-exempt recipients on Form 8966, Schedule K-1, or Form 3520-A to the extent required under its FATCA requirements or the WP agreement or WT agreement.
Documentation Requirements.
The existing WP agreement and WT agreement require a WP or WT to document its partners, beneficiaries or owners solely with Forms W-8 and W-9 and do not permit reliance on the presumption rules of chapters 3 or 61. The revised WP agreement and WT agreement also prohibit reliance on the presumption rules with respect to a WP or WT’s direct partners, beneficiaries, or owners and retain an automatic termination provision for a WP or WT’s failure to obtain documentation for a direct partner, beneficiary, or owner.
The revised WP agreement and WT agreement provide for the use of documentary evidence, in lieu of a Forms W-8 or Form W-9, for direct partners, beneficiaries, or owners that is obtained by a WP or WT that is an FFI and that is subject to the “know-your-customer” practices and procedures of a jurisdiction that the IRS has approved. A list of jurisdictions for which the IRS has received know-your-customer information and for which the know-yourcustomer rules are acceptable is available at: http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules.
The rules permitting the use of documentary evidence do not apply to an NFFE acting as a WP or WT, which is required to obtain Forms W-8 and W-9 to document the chapter 3 status and, when required, the chapter 4 status of its partners, beneficiaries, or owners.
Agency Option, Joint Account Option, and Indirect Partners.
The existing WP agreement and WT agreement do not allow a WP or WT to act as a WP or WT for its indirect partners, beneficiaries, or owners, except in two specific situations describe section 9 of the WP agreement or WT agreement (agency and joint account arrangements), both of which require a written agreement between the WP or WT and another foreign partnership or foreign trust.
Notwithstanding the restriction described above, the existing WP agreement and WT agreement were modified by rider in certain cases to permit a WP or WT to act as such for its indirect partners, beneficiaries, or owners, but the rider required specific payee reporting by the WP or WT with respect to these partners, beneficiaries, or owners.
The WP agreement and WT agreement are revised to provide that a WP or WT may act as a WP or WT with respect to direct and indirect partners, beneficiaries, or owners of a direct partner that is a passthrough partner (as defined in section 2 of the WP or WT agreement), provided that such partner, beneficiary, or owner is not a U.S. non-exempt recipient (unless such U.S. non-exempt recipient is included in the passthrough partner’s chapter 4 withholding rate pool of U.S. payees or recalcitrant account holders) in which case the WP or WT may also assume the withholding and Form 1042-S reporting requirements for these indirect partners.
Compliance Procedures.
The existing WP agreement and WT agreement require periodic audits by an external auditor in certain circumstances, including when a WP or WT made a pooled reporting election. The revised WP agreement and WT agreement replace the external audit requirement with an internal compliance program.
Modified Form 1065 Filing Requirement.
Under the existing WP agreement, unless modified by a rider, a WP is required to file Form 1065 and Schedules K-1 in accordance with the requirements of §1.6031(a)-1 and the instructions to the form.The revised WP agreement, incorporates the modified filing obligations under §1.6031(a)-1(b)(3) with certain revisions to permit a WP that meets the conditions specified in section 6.03(B) of the WP agreement, including that the WP would not otherwise be required to report a specifically allocated item to any partner on Schedule K-1, to either not file a partnership return or not file Schedules K-1 for certain foreign partners dependent on whether the WP has any direct or indirect U.S. partners.
SECTION 4. Withholding Foreign Partnership Agreement
Section 1. PURPOSE AND SCOPESECTION 5. Withholding Foreign Trust Agreement
Section 1. PURPOSE AND SCOPE Section 2. DEFINITIONS Section 3. WITHHOLDING RESPONSIBILITY Section 4. DOCUMENTATION REQUIREMENTS Section 5. WITHHOLDING FOREIGN TRUST WITHHOLDING CERTIFICATE Section 6. TAX RETURN AND INFORMATION REPORTING OBLIGATIONS Section 7. ADJUSTMENTS FOR OVER- AND UNDERWITHHOLDING; REFUNDS Section 8. COMPLIANCE PROCEDURES Section 9. CERTAIN PARTNERSHIPS AND TRUSTS AND INDIRECT BENEFICIARIES AND OWNERS Section 10. EXPIRATION, TERMINATION AND DEFAULT Section 11. MISCELLANEOUS PROVISIONS Section 12. EFFECTIVE DATE OF AGREEMENT
download for free –> LexisNexis® Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA)
Posted in FATCA, W-8BEN-E | Tagged: FATCA, Foreign Partnership, Foreign Partnership Agreement, Foreign Trust Agreement, Foreign Trust Status, IRS | Leave a Comment »
Posted by William Byrnes on August 8, 2014
Question: Notice 2014-33, 2014-21 I.R.B. 1033, provides that a withholding agent or FFI may treat an obligation as a preexisting obligation if the obligation (i) is issued, opened, or executed on or after July 1, 2014, and before January 1, 2015, and (ii) is held by an entity. How does this provision of Notice 2014-33 apply when the recipient of a payment made under the obligation is a flow-through entity or intermediary?
Answer: A withholding agent may treat an obligation held by an entity (including an entity acting as an intermediary with respect to the obligation or a flow-through entity) as a preexisting obligation to the extent permitted in Notice 2014-33. Therefore, an obligation held by an intermediary or flow-through entity is treated as a preexisting obligation if it is issued, opened, or executed before January 1, 2015. In such a case, the withholding agent may rely on a pre-FATCA Form W-8 to document the holder of the obligation throughout 2014. If the flow-through entity or intermediary provides the withholding agent with a withholding statement allocating a portion of a payment to a chapter 4 withholding pool of recalcitrant account holders or NPFFIs (or payee-specific information for such persons), then the withholding agent is required to apply chapter 4 withholding to the portion of the payment allocated to each such pool of payees (or each such payee), even though it is not yet required to document the chapter 4 status of the flow-through entity or intermediary. However, a withholding agent must determine the chapter 4 status of a flow-through entity or intermediary as a PFFI or RDCFFI when provided with a withholding statement allocating a portion of a payment to a chapter 4 withholding rate pool of U.S. payees that the withholding agent reports on Form 1042-S as made to the pool rather than requiring payee-specific documentation for each payee in the pool or withholding and reporting in accordance with the applicable presumption rules.
If the withholding agent receives documentation from a flow-through entity with respect to an interest holder in the entity or from an intermediary with respect to its account holder and confirms (in writing) that the intermediary or flow-through entity treats the obligation as a preexisting obligation (including under Notice 2014-33, if applicable), the withholding agent may treat the obligation as a preexisting obligation provided that the withholding agent does not have documentation showing the interest holder or account holder to be an NPFFI. The preceding sentence would apply, for example, to documentation provided with respect to a passive NFFE that is an account holder in an intermediary and that does not provide the information or certification described in Treas. Reg. § 1.1471-3(d)(12)(iii) with respect to its owners.
FATCA – FAQs: General Compliance, See Q7
download free –> the 58 page Lexis Guide to FATCA Compliance, Chapter 1.
Posted in FATCA | Tagged: EAG, FATCA, FFI, IGA, IRS, PFFI, RDCFFI | Leave a Comment »
Posted by William Byrnes on August 8, 2014
A Review of the Development of an Internet Delivered LL.M Program in the United States
The article comprises four sections. Part 1 addresses the economics reasons for, and logistics considerations of, the Internet-delivered Program. Part 2 reviews the pedagogical 
approach to legal education employed in the United States, criticisms thereof, and finally examines an emerging pedagogical trend in the United Kingdom. Part 3 reviews the teaching tools employed in the Program, and Part 4 reviews the practical aspects of developing the Program and obtaining American Bar Association (ABA) acquiescence, and reviews the Internet-delivered law courses that came before it. Finally, the article concludes with some personal observations.
The Decision Process …
Before making the decision to offer an Internet delivered Masters of Law program, integration of the Internet with legal education must be a matter of strategic thinking by the Faculty and Administration. A law school should consider several issues in its decision to pursue integration between legal education and the Internet. From a pedagogical perspective (addressed in Part 2 below), a law school’s faculty may determine a need to provide a complementary methodology for its legal teaching methods. Collaterally, the law school may want to stay in the academic and technology forefront relative to competitor law schools. The law school may also want to maintain or increase the student body size beyond the law school’s geographical boundary.
Reasons for this cause may be financial in light of local competition or a decrease in the local student market. Alternatively, it may be pedagogical, i.e; to increase student diversity, including the intake of foreign students. The law school may need to expand, for niche subjects, a class or program’s size beyond the law school’s geographical boundary for reasons of the course or program’s financial viability or student diversity. The law school should also consider whether law school’s mission may require providing legal education to geographical areas without law schools or to persons without access to local legal education, for example, economically disadvantaged persons.
After deciding whether to pursue Internet delivered legal education, the institution must then address its position regarding the pedagogy of legal education via the Internet. The faculty discussion will likely produce heated debate between the monastic school traditionalists and the technological pioneers. Finally, the institution must address the issue of potential Internet integration while maintaining compliance with the: … read the 47 page at SSRN
Posted in Courses | Tagged: online legal education, pedagogy | Leave a Comment »
Posted by William Byrnes on August 7, 2014
Combing through the IRS’ income tax data by county and by zipcode can provide valuable insight for, by example, where to locate a business that depends on foot traffic, where to live (for a well funded local public school) and where to direct marketing efforts for financial planning and wealth management.
Take for instance California. Some counties have substantially more tax filers in the category above $200,000 income, than others. The entire state has 802,100 tax filers reporting $200,000 and greater income, 83% being married couples (665,110). That’s almost twice New York State’s with just 413,720 (of course, to understand New York City, I would need to add in the metropolitan stats from the tri-state Connecticut and New Jersey suburbs of the City). However, Texas beat out New York at 433,150 high earner returns, whereas Florida only had 278,560.
Read my analysis by country and metropolitan area in my International Finance Professor Blog article.
Posted in Tax Policy, Wealth Management | Tagged: IRS statistics, married couples, Wealth | Leave a Comment »
Posted by William Byrnes on August 7, 2014
In Summer Tax Tip 10-2014, the IRS disclosed that that many taxpayers will discover that they either get a larger refund or owe more tax than they expected next April 15, 2015. But, the IRS stated, this type of tax surprise is controllable by the taxpayer.
One way to prevent owing more tax next April 15, plus interest and any penalty, or to avoid having too much tax withheld, is to adjust the amount of tax withheld from salary.
Another way to prevent interest and penalties on April 15th is to change the amount of estimated tax paid during the year.
Factors the IRS wants taxpayers to consider during the summer include:
• New Job. A taxpayer must fill out and submit Form W-4, Employee’s Withholding Allowance Certificate in order to begin new employment. The employer will use the information provided by the taxpayer on this form to calculate the amount of federal income tax to withhold from the paycheck.
• Estimated Tax. A taxpayer may need to pay estimated tax directly to the IRS during 2014 BEFORE filing the April 15 tax return in 2015. If a taxpayer earns income without withholding, such as self-employment, interest, dividends or rent, then it is likely that the taxpayer owes estimated tax. For the year 2014, tax may be due also on June 16, 2014, on Sept. 15 in 2014, on Jan. 15, 2015, and of course, also on Wednesday, April 15, 2015. Read more about estimated tax here.
• Life Event Change. Married? New Child? New House? The Form W-4 or Estimated Tax calculation needs to be updated to reflect a marriage, a child, or the purchase of a new home.
• Changes in Circumstances. A taxpayer that receives advance payment of the Obama Care premium tax credit in 2014 must report changes in circumstances, such as changes in income or family size, to the Health Insurance Marketplace where the medical insurance was bought for the year. Also, a taxpayer must notify the Marketplace if moving away from the geographic area covered by the Marketplace plan. Read more here.
Posted in Taxation | Tagged: estimated tax, IRS, Premium Tax Credit, withholding calculation | Leave a Comment »
Posted by William Byrnes on August 7, 2014
First legal vertical Startup Weekend to disrupt legal industry by creating actionable solutions to intractable problems
San Francisco, Calif – August 15, 2014 – Registration is ongoing for the first legal technology 
vertical Startup Weekend, set to take place from August 15-17 at Airbnb HQ in San Francisco. The LegalTech Startup Weekend organizing team invites everyone passionate about law, design, policy, data analytics, information architecture and building elegant solutions to join this weekend of innovation.
Why legal technology?
This potential for meaningful impact – and profit – is also attracting investors to the legal tech space, with investments leaping to $458 million from $66 million in 2012. The average valuation of legal tech companies currently stands at $4.2 million, and analysts expect continued exponential growth.
The intersection of law and technology presents unique challenges and exciting opportunities for growth and creativity for developers, designers, and legal industry insiders. Recent years have seen a surge of answers to law’s need for innovation: e-discovery tools, contract generation apps, law practice management SaaS, virtual firms, and websites are beginning to radically change the way lawyers research, consult and provide legal services. A wide range of possibilities remain for new startups to join companies like LegalZoom and Clio in integrating tech into solutions for consumers, attorneys, businesses, and the government.
Sign up on Eventbrite & check us out on Twitter and Facebook. For more information, email the organizing team at legalsf@startupweekend.org.
Posted in Courses | Tagged: Legal Tech, Startup, Venture Capital | Leave a Comment »
Posted by William Byrnes on August 6, 2014
Posted in Uncategorized | Leave a Comment »
Posted by William Byrnes on August 6, 2014
This free webinar will focus on “myRA” (“My Retirement Account”), a new retirement savings account for individuals looking for a simple, safe, and affordable way to start saving. Savers will be able to open an account for as little as $25 and contribute $5 or more every payday. myRA balances will never go down, and there will be no fees. Initially, myRA will be made available through employers and the investment held in the account will be backed by the U.S. Treasury.
For businesses, making myRA available to employees is straight-forward. Treasury will handle account set-up and maintenance and will provide informational materials for business owners to share with their employees. There is no employer-match or contribution. In fact, all that interested employers have to do is to make Treasury-provided program materials available to their employees and set-up ongoing payroll direct deposits into myRA for interested employees. myRA is intended for employees who do not have access to an employer-sponsored plan or who are not eligible for their employer’s plan. myRA is not intended to replace current employer-sponsored retirement plan offerings.
Topics being discussed include:
A question and answer period will follow.
Posted in Retirement Planning | Tagged: myIRA, Small Business Administration | Leave a Comment »
Posted by William Byrnes on August 5, 2014
New and updated FATCA Registration System and FFI List FAQs have been posted to the FATCA Website.
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).
Posted in FATCA | Tagged: FATCA, FFI, GIIN, IGA | Leave a Comment »
Posted by William Byrnes on August 5, 2014
Germany Brings FATCA Law Into Force #GATCA.
See in German: http://www.bundesrat.de/SharedDocs/drucksachen/2014/0201-0300/234-14.pdf?__blob=publicationFile&v=1
Posted in FATCA | Leave a Comment »
Posted by William Byrnes on August 4, 2014
everything you need to know in 2 minutes
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Posted by William Byrnes on August 4, 2014
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to amend existing Bank Secrecy Act (BSA) regulations to help prevent the use of anonymous companies to engage in or launder the proceeds of illegal activity in the U.S. financial sector. See Proposed Rules and New Beneficial Ownership Form (Appendix A) here.
The proposed rule would clarify and strengthen customer due diligence obligations of banks and other financial institutions (including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities).
The proposed amendments would add a new requirement that these entities know and verify the identities of the real people (also known as beneficial owners) who own, control, and profit from the companies they service to facilitate reporting and investigations in support of tax compliance, and advancing international commitments made to foreign counterparts in connection with the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).
FATCA’s USA Reciprocity to Report Foreign Nationals Financial Information to Foreign Governments
The United States has collaborated with foreign governments to enter into intergovernmental agreements that facilitate the effective and efficient implementation of these requirements. Pursuant to many of these agreements, the United States has committed to pursuing reciprocity with respect to collecting and reporting to the authorities of the FATCA partner information on the U.S. accounts of residents of the FATCA partner. A general requirement for U.S. financial institutions to obtain beneficial ownership information for AML purposes advances this commitment, and puts the United States in a better position to work with foreign governments to combat offshore tax evasion and other financial crimes.
Required Due Diligence by US Financial Institutions
The rulemaking clarifies that customer due diligence includes four core elements:
The proposed requirement to identify and verify the identity of beneficial owners is addressed through the proposal of a new requirement for covered financial institutions to collect beneficial ownership in a standardized format.
Those financial institutions will have to identify and verify any individual who owns 25 percent of more of a legal entity, and an individual who controls the legal entity.
Determining Beneficial Ownership
The second element of CDD requires financial institutions to identify and verify the beneficial owners of legal entity customers. FinCEN proposes a new requirement that financial institutions identify the natural persons who are beneficial owners of legal entity customers, subject to certain exemptions.
The definition of “beneficial owner” proposed herein requires that the person identified as a beneficial owner be a natural person (as opposed to another legal entity). A financial institution must satisfy this requirement by obtaining at the time a new account is opened a standard certification form (Appendix A of Proposed Rules) directly from the individual opening the new account on behalf of the legal entity customer.
Financial institutions would be required to verify the identity of beneficial owners consistent with their existing CIP practices. However, FinCEN is not proposing to require that financial institutions verify that the natural persons identified on the form are in fact the beneficial owners. In other words, the requirement focuses on verifying the identity of the beneficial owners, but does not require the verification of their status as beneficial owners. This proposed requirement states minimum standards.
In order to identify the beneficial owner, a covered financial institution must obtain a certification from the individual opening the account on behalf of the legal entity customer (at the time of account opening) in the form of Appendix A. The form requires the individual opening the account on behalf of the legal entity customer to identify the beneficial owner(s) of the legal entity customer by providing the beneficial owner’s
This information is consistent with the information required under the CIP rules for identifying customers that are natural persons. The form also requires the individual opening the account on behalf of the legal entity customer to certify, to the best of his or her knowledge, that the information provided on the form is complete and correct. Obtaining a signed and completed form from the individual opening the account on behalf of the legal entity customer shall satisfy the requirement to identify the beneficial owners.
This section also requires financial institutions to verify the identity of the individuals identified as beneficial owners on the certification form. The procedures for verification are to be identical to the procedures applicable to an individual opening an account under the existing CIP rules.
Accordingly, the financial institution must verify a beneficial owner’s identity using the information provided on the certification form. For foreign persons, the form requires –
according to the same documentary and non-documentary methods the financial institution may use in connection with its customer identification program (to the extent applicable to customers that are individuals), within a reasonable time after the account is opened.
A financial institution must also include procedures for responding to circumstances in which it cannot form a reasonable belief that it knows the true identity of the beneficial owner, as described under the CIP rules.
Definition of Beneficial Owner
The proposed definition of “beneficial owner” includes two independent prongs:
(a) an ownership prong and
(b) a control prong.
A covered financial institution must identify each individual under the ownership prong (i.e., each individual who owns 25 percent or more of the equity interests), in addition to one individual for the control prong (i.e., any individual with significant managerial control).
If no individual owns 25 percent or more of the equity interests, then the financial institution may identify a beneficial owner under the control prong only. If appropriate, the same individual(s) may be identified under both criteria.
Purpose of New CDD Rules
Clarifying and strengthening CDD requirements for U.S. financial institutions, including an obligation to identify beneficial owners, advances the purposes of the BSA by:
Cost of New Compliance?
FinCEN believes that there are approximately eight million such accounts opened annually by covered financial institutions. Based on the total number of covered financial institutions,65 this would result in each covered financial institution opening approximately 368 such accounts per year, or 1.5 per day. Estimating an average time for a covered financial institution to receive the certification and verify the information of 20 minutes and an average cost of $20 per hour, this results in a cost of approximately $54 million.
I will draft a topic chapter on the new FINCEN Beneficial Ownership Due Diligence requirements for the Winter release of LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide
LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries, is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation. As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.
Posted in FATCA, Money Laundering | Tagged: beneficial ownership, CDD, due diligence, FATCA, FINCEN, IGA, reciprocity | 1 Comment »
Posted by William Byrnes on August 4, 2014
From Professor Paul Caron’s Tax Prof Blog (15 million views a year and growing) … read it at http://taxprof.typepad.com/taxprof_blog/2014/08/top-5.html
Prof Carron states that “There is a bit of movement in this week’s list of the Top 5 Recent Tax Paper Downloads on SSRN”. 
I made #2 this week for the 58 page FATCA Guide: Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA) (LexisNexis 2d ed. 2014)
Posted in FATCA | Tagged: FATCA | Leave a Comment »
Posted by William Byrnes on August 4, 2014
Author Bio: Luke Peters is an avid reader of finance and economics related books, novels and other literature and likes to keep up with the latest news and developments in the market. He has written several blogs and articles related to law, finance and economics across the internet.
In simple words, a currency crisis is a situation which is a result of decline in the value of the currency in a particular country. Currency crisis is one of the major causes for economic depression and economic downfall of a country. It affects the economy by disturbing the foreign exchange rates and decreases the purchasing power of a country. During the currency crisis, an economy’s central bank is unable to meet the demands that the banknotes promise through its exchange reserves and leads to the devaluation of the currency in foreign market. Listed below are the several factors that can trigger the currency crisis in an economy. (Image Credits @ epSos)
While the foreign exchange pegs are intended to increase the inflow of foreign exchange in the reserves to allow the creation of more money, the developing nations are plagued by higher credit creation from the foreign exchange reserves. The monetary policies of most developing nations are aimed at the protection from inflation that keeps their domestic interest rates higher than the foreign ones. This creates more demand for foreign currency.
Most East Asian countries introduced liberalization policies during their early stages of developments and led to the decline of the domestic market and increase in the demand for imports. Globalization of the financial market during the early stages did not allow the market to fully develop to match the growing competition while the domestic interest rates remain high. Also the lack of risk assessment standards put the economy in further debt.
One of the major factors that have caused currency crisis across the world is the investor’s disbelief in the government’s ability to back up the promised made through their currency. Emerging economies often need large amount of financial credits to develop their economic and industrial sector and several times the debt surpasses the amount of reserves in the country’s central reserve. Pegging the domestic currency against a reserve currency can certainly stabilize a country’s economy but also makes the government susceptible to such speculative attacks from investors.
While the expansion of credit gave rise to the real estate business, poor risk assessment standards and the excessive amount of bad and unpaid debts led to the collapse of several banking institutions. Unpaid debts cause the depositors to lose faith in the bank’s ability to safe guard their money, leading to withdrawal of depositor funds that in turn leads to the bank’s collapse. The closed down bank put an additional stress on the government’s reserves and also causes a bad impression in the investors’ minds.
One of the major causes of currency crisis is the poor fiscal and foreign exchange policy of the government. Less emphasis on the domestic market and loose risk assessment policies often leads to excess credit creation, effectively creating a moral hazard for a country’s reserves. Abundance of liquid assets allow unrestricted outflow of money without the guarantee of equivalent returns. The IMF policies have further led to the decline of several economies as easy credit increased the probabilities of adverse selection and losses.
The abovementioned factors are the major reasons that can trigger currency crisis in an economy. The controlled use of foreign exchange reserves and enforcement of monetary policies is one probable solution to the problem of currency crisis. One can refer to several foreign exchange websites to shire the services of forex brokers in Switzerland and other places in the world. Foreign exchange brokers facilitate an easy and stress free solution to all your foreign exchange needs.
Posted in Financial | Tagged: Currency Crisis, FOREX | Leave a Comment »
Posted by William Byrnes on August 3, 2014
Without tax you can not have war. War is expensive. War is a rich country’s game.
As long as we deny developing nations the means to retain their own money by ignoring the systematic theft of their resources by corrupt leaders who misappropriate nation’s money to themselves and conceal their theft in offshore accounts, we also deny them the means to defend themselves and improve their lot. In the meantime, we, in developed countries, hear the urgent pleas for help from developing countries and answer them as soon as we want to (if indeed we want to help at all).
Of course, that is all rubbish right? Developing countries have proved their ability to fight amongst themselves just as much as have developed countries. But that is no problem because we in developed counties facilitate capital flight away from developing countries, thus keeping them…
View original post 1,257 more words
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Posted by William Byrnes on August 2, 2014
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
On August 1, 2014 the OECD issued its report “Impact Of BEPS In Low Income Countries, Part I” concludes that developing countries often face policy and other conditions that impact on their abilities to address base erosion and profit shifting. The OECD reported the following:
In this report, the developing countries and international organizations identified the following key BEPS issues as being of most relevance:
In addition, the developing countries often face acute pressure to attract investment through offering tax incentives, which may erode the country’s tax base with little demonstrable benefit.
Part I of the report offered the interim conclusion that BEPS has the potential to considerably impact on domestic resource mobilization in developing countries. The OECD identified that the risks faced by many developing countries may differ from those faced by more advanced economies. The OECD will issue Part II of the report in September of 2014.
Part II will set which of the 15 actions included in the BEPS Action Plan are of most relevance to developing countries and whose corresponding outcomes can be expected to benefit them. Also, the report will discuss other BEPS-related issues not in the Action Plan, including wasteful tax incentives, the lack of comparability data in developing countries and tax avoidance through the indirect transfer of assets located in developing countries. Part II will also discuss capacity building initiatives that, in the developing country context, must go hand in-hand with regulatory measures.
See my other transfer pricing articles at https://profwilliambyrnes.com/category/transfer-pricing-2/
Lexis’ Practical Guide to U.S. Transfer Pricing, 28 chapters from 30 expert contributors led by international tax Professor William Byrnes, is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign. Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.
Posted in Transfer Pricing | Leave a Comment »
Posted by William Byrnes on August 1, 2014
By William Byrnes and Haydon Perryman
The IRS published its August list of 95,239 FATCA registered FFIs, including entities that completed the registration process by July 25th. The increase has been disappointing to say the least. Only 7,246 additional entities completed registration this past month, up from 87,993 in July.
89,718 FFIs (94%) are registered from the 101 IGA countries on the GIIN list. Only 4,801 FFI (5%) registered from the 143 countries without an IGA for which FATCA withholding began July 1st.
June GIINs 77,354 -> July GIINs 87,993 -> August GIINs 95,239 (7,246 increase)
How Many Foreign Financial Institutions Are Still Not Registered? Most!
Most pundits thought at least 20% of the FFIs requiring FATCA registration would have done so by now. We were wrong. I was personally thinking that 110,000 would be registered for the August 1st FFI list. The small increase of just 7,246 is troubling. Total global compliance remains in the single digits by both the IRS and foreign government estimated numbers.
The 30% FATCA withholding began July 1st on 143 countries (101 have IGAs that forestall withholding until January 1, 2015). Only 4,801 FFI (5%) registered from these 143 countries. Thus, FATCA compliance is running in the low, single digits for these countries.
read our analysis and a country-by-country, and IGA, breakdown at International Financial Law Professor
Who We Are?
Haydon Perryman, FATCA Compliance expert of Strevus, and I have been undertaking (and publishing) the leading, same-day, analysis of the previous June 2nd and the July 1st of the FATCA FFI GIIN list by country, by IGA, by EAG, as well as exploring other interesting aspects of registered FFIs, and FATCA compliance documentation (e.g. W-8s and equivalent forms allowed by IGA). Haydon brings the practical side to bear having established the FATCA compliance system for Tier 1 UK institutions and Tier 1 EU ones, and I the academic side being the primary author of Lexis’ Guide to FATCA Compliance and an international tax professor.
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).
Posted in FATCA | Tagged: FATCA, FFI, GIIN, IGA | 2 Comments »
Posted by William Byrnes on July 31, 2014
watch the IRS Circular 230 webinarsee Revised Circular 230 (June 2014)
What is Circular 230?
Circular 230 is a document containing the statute and regulations detailing a tax professional’s duties and obligations while practicing before the IRS; authorizing specific sanctions for violations of the duties and obligations; and, describing the procedures that apply to administrative proceedings for discipline. Circular 230 is the common name given to the body of regulations promulgated from the enabling statute found at Title 31, United States Code § 330. This statute and the body of regulations are the source of OPR’s authority. Title 31 seeks to insure tax professionals possess the requisite character, reputation, qualifications and competency to provide valuable service to clients in presenting their cases to the IRS. In short, Circular 230 consists of the “rules of engagement” for tax practice. The underlying issue in all Circular 230 cases is the tax professional’s “fitness to practice” before the IRS.
Posted in Compliance, Tax Policy | Tagged: Circular 230, IRS | Leave a Comment »
Posted by William Byrnes on July 30, 2014
Barrie McKenna, Globe & Mail 30 July 2014, p. B3 http://bit.ly/1tus1jA “A leading accounting firm is taking the unusual step of urging Canadians to double-check their citizenship status, warning there may still be thousands of accidental Americans in Canada oblivious to their U.S. tax obligations.” Only three comments so far. I made a comment, calling […]
via The Isaac Brock Society http://bit.ly/1n3Whth
Posted in Uncategorized | 1 Comment »
Posted by William Byrnes on July 30, 2014
Speech delivered today link here, the juicy bits excerpted below with emphasis added.
I began my career as a prosecutor handling a wide range of crimes, but I have spent nearly a decade focusing on cyber issues – including as the National Coordinator of the Justice Department’s Computer Hacking and Intellectual Property, or “CHIP,” program. …
But we also emphasized that terrorists are not the only ones seeking to harm us online—there are other dangerous actors out there, including nation-states. We pointed to the growing use of botnets as a way to attack networks, infect computers, and inject spyware.
I could scarcely have guessed back in 2007 that by today the NCFTA would have aided in successful prosecutions of more than 300 cyber criminals worldwide. … “John Dillinger couldn’t do a thousand robberies in the same day in all 50 states in his pajamas halfway around the world. That’s the challenge we now face with the Internet.” …
[5 Chinese military indicted for cyber-stealing American nuclear power and other industrial secrets]
Earlier this summer, we announced unprecedented charges against five members of the Chinese military for computer hacking, economic espionage, and other offenses directed at six American victims in the U.S. nuclear power, metals and solar products industries.
What these charges allege is stealing from America’s heartland, literally and figuratively.
The charges allege that cyber thieves grabbed the hard work of companies right here in Pennsylvania. And they allege that the thieves targeted key American economic sectors, like metals and energy.
This is the true face of cyber economic espionage and of those it targets. This type of theft hurts American competitiveness by stealing what we work so hard for.
These charges against uniformed members of the Chinese military were the first of their kind. Some said they could not be brought. But this indictment alleges, with particularity, specific actions on specific days by specific actors to use their computers to steal valuable information from across our economy.
It alleges that while the men and women of our businesses spent their work-days innovating, creating, and developing strategies to compete in the global marketplace, these members of Unit 61398 spent their work days in Shanghai stealing the fruits of our labor.
It alleges that they stole information particularly beneficial to Chinese companies, and took communications that would provide competitors with key insight into the strategy and vulnerabilities of the victims.
We should not and will not stand idly by, tacitly giving permission to anyone to steal from us. We will hold accountable those who steal—no matter who they are, where they are, or whether they steal in person or through the Internet.
Because cyber crime affects us all, including those here in Pennsylvania who have suffered at the hands of cyber thieves.
While cases like the one brought here in Pittsburgh are extremely challenging, we proved that they are possible. The criminal justice system is a critical component of our nation’s cyber security strategy.
At the Justice Department, we follow the facts and evidence where they lead. Sometimes, the facts and evidence lead us to a lone hacker in the United States, or a sophisticated organized crime syndicate in Russia. And sometimes, they lead us to a uniformed member of the Chinese military.
Other times, as we recently saw, they may lead us to a foreign businessman alleged to have conspired to hack in and steal information from Boeing and other defense contractors.
Information that included more than six hundred thousand data files of sensitive information related to U.S. military aircraft and other defense matters.
And yet other times, they may lead to other types of criminals, like those investigated and prosecuted by DOJ’s Criminal Division for spyware, botnets, and similar conduct. …
Terrorists are also using cyberspace to further their goals. They are using it to communicate and plan. They are using it for propaganda and recruitment. And they are intent on getting to the point where they can conduct cyber attacks themselves.
That last category is a relatively new one. But we know that terrorists are looking to launch cyber attacks. They have that intent now.
Over the past few years, we have seen al-Qaeda issue calls for cyberattacks against networks such as the electric grid, comparing vulnerabilities in the United States’ critical cyber networks to the vulnerabilities in the country’s aviation system before 9/11.
If successful, terrorists could use cyber attacks to bring about economic or physical damage, or even, in extreme cases, serious injury or death. …
[Other Economic Espionage]
As just one example, in March, we successfully obtained a significant conviction against Walter Liew for economic espionage.
What Liew stole was something Americans see and use daily. Something that does not have a national security implication. Something that simply brings a profit.
Liew stole the formula for the color white from Dupont and passed it to a large Chinese state-owned company. Just this month, he was brought to justice — sentenced to 180 months’ incarceration and ordered to pay restitution of about half a million dollars. …
[National Security Cyber Specialists’ Network]
Most significantly, in 2012, we created and trained the National Security Cyber Specialists’ Network to focus on combating cyber threats to the national security.
This Network—known as NSCS—includes prosecutors from every U.S. Attorney’s Office around the country, along with experts from the Department’s Computer Crime and Intellectual Property Section (or “CCIPS”) and attorneys from across all parts of NSD. …
That’s how we were able to indict five members of the Third Department of the People’s Liberation Army. And now these men stand accused of cyber intrusions targeting a range of U.S. industries.
[GameOver Zeus botnet]
A great example is yet another Pittsburgh story. Back in June, our colleagues in the Criminal Division, the Western District of Pennsylvania, and the Bureau undertook an operation that disrupted the GameOver Zeus botnet.
This criminal threat was significant – losses attributable to the botnet were estimated to be more than $100 million. But disruption involved more than just criminal charges – it also involved civil court orders, significant information sharing, and seizures of servers in many foreign countries….
[InfraGard]
Through the FBI’s InfraGard, the FBI works closely with companies that have been the victims of hackers.
That program, which has grown to more than 25,000 active members, continues to bring together individuals in law enforcement, government, the private sector, and academia to talk about how to protect our critical infrastructure.
Posted in Financial Crimes | Tagged: China, cyber crime, cyber security, hacking | Leave a Comment »
Posted by William Byrnes on July 30, 2014
See the article on the International Financial Law Blog http://lawprofessors.typepad.com/intfinlaw/2014/07/w8ben-w8bene-w8eci-w8exp-and-w8imy-withholding-agent-instructions-released.html
Free FATCA Lexis chapter download at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671
Posted in FATCA | Tagged: W-8BEN, W-8BEN-E, W-8IMY, W–8ECI, W–8EXP, withholding agent | Leave a Comment »
Posted by William Byrnes on July 30, 2014
– very few persons graduating with compliance degrees, so positions go unfilled – listen to the podcast by the nation’s lead Compliance Recruiter and read the WSJ comment:
“Most firms have hired their chief compliance officer in the last two years and now are further building out their compliance infrastructure. They need more hands on deck.”
contact me if you are interested in discussing how the degree in compliance and anti money laundering works… profbyrnes@gmail.com
Posted in Compliance | Tagged: AML, careers, Compliance | Leave a Comment »
Posted by William Byrnes on July 30, 2014
This document is a DRAFT of the proposed Guidance Notes for the US and UK FATCA Agreements with the Government of the British Virgin Islands and at this stage it is for discussion purposes ONLY!
153 page draft FATCA guidance issued by BVI available > here <.
3. DEEMED COMPLIANT FINANCIAL INSTITUTIONS – US AGREEMENT ONLY
4. NON-REPORTING FINANCIAL INSTITUTIONS – UK AGREEMENT ONLY
13.4. Pre-existing Cash Value Insurance Contracts or Annuity Contracts unable to be sold to US residents – US Agreement only
13.4.1. Assignment of Pre-existing Insurance Contracts
13.5. Lower Value Accounts
13.6. Electronic Record Searches and Lower Value Accounts
13.6.1. Identifying Indicia – US Agreement
13.6.2. Curing Indicia – US Agreement
13.6.3. Identifying Indicia – UK Agreement
13.6.4. Curing Indicia – UK Agreement
UK AGREEMENT – SPECIFIC ELEMENTS
1. Annex IV – Alternative Reporting Regime for UK Resident
Non-Domiciled Individuals
2. Other differences to the US Agreement
Posted in FATCA | Tagged: BVI, FATCA, Guidance Notes, IGA | Leave a Comment »
Posted by William Byrnes on July 30, 2014
Posted in Uncategorized | Tagged: Banco Espírito Santo, BOA, Bribery, Drug Dealing, FATCA, FCPA, FFI, Guns, Insolvencies, Lloyds, Money, Money Laundering, Smith Wesson, Sun Trust, Tax Evasion | Leave a Comment »
Posted by William Byrnes on July 29, 2014
Your paper, “LEXISNEXIS® GUIDE TO FATCA COMPLIANCE (CHAPTER 1, BACKGROUND AND CURRENT STATUS OF FATCA)”, was recently listed on SSRN’s Top Ten download list…
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Posted in FATCA | Tagged: FATCA, IGA, SSRN | Leave a Comment »
Posted by William Byrnes on July 28, 2014
Why would a taxpayer want to include the IRS in his or her wedding plans? Well, “its the law”.
No, the taxpayer does not need to send a wedding invitation to the closest IRS office. But a 2014 marriage results in changes to the new married “couple’s” 2014 tax filing and possibly amount owed in tax for 2014. Whether the couple will owe more in tax each year, including the year of marriage, over that of the combined amount of each individual’s tax due, depends on several factors, such as whether both spouses have income and how much that income is. In general, a married couple, when both spouses are employed, pay more income tax than if they remained single and filed individual tax returns. Also, the married couple may owe, and may owe more, of the additional 3.8% Net Investment Income Tax.
The IRS’ Summer Tax Tip 2014-2 reminds taxpayers that marriage has certain tax consequences from at least a filing persepctive. These include:
Change in filing status. If a couple is married before, or even on Dec. 31, 2014 at 11:59pm, then for the whole year of 2014 for tax purposes the IRS considers the couple married. Thus, neither spouse may file an individual’s tax return any longer. Instead, the married couple must choose to file your federal income tax return either jointly or separately (as a married couple) for 2014.
Same-sex married couples: If the couple is legally married in a state or country that recognizes same-sex marriage, then the couple must file as married for the federal tax return. This is true even if you and your spouse later live in a state or country that does not recognize same-sex marriage.
Name change. The names and Social Security numbers listed on a tax return must match the Social Security Administration records. If a spouse changes the family name, then that name change must be reported to SSA.
Change tax withholding. A change in marital status requires that a new Form W-4 for each spouse’s employer (Employee’s Withholding Allowance Certificate). If it normal that when both spouse have income, the combined incomes moves each into a higher tax bracket for withholding at work. Use the IRS Withholding Calculator tool to assist completing a new Form W-4.
Obama Care Premium Tax Credit changes in circumstances. If a taxpayer took advantage of receiving the advance payment of the premium tax credit in 2014, then it is required to report changes in circumstances, such as changes in income, marriage, or family size, to the Health Insurance Marketplace. Moreover, if one spouse will move out of the area covered of a current Marketplace plan, then that spouse must notify the Marketplace.
Address change for IRS letters. A taxpayer has the responsibility to inform that IRS of an address changes. To do that, file Form 8822, Change of Address, with the IRS. Also, separately, the taxpayer should ask the U.S. Postal Service online at USPS.com to forward any mail sent to the former address.
Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.
Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction. For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.
Posted in Taxation | Tagged: employer withhholding, filing jointly, filing status, IRS, same sex couples, W-4 | 1 Comment »
Posted by William Byrnes on July 24, 2014
Wyden Statement on Corporate Inversions and the Need for Comprehensive Tax Reform (excerpt):
The U.S. tax code is infected with the chronic diseases of loopholes and inefficiency. These infections are hobbling America’s drive to create more good-wage, red, white and blue jobs here at home. They are a significant drag on the economy and are harming U.S. competitiveness. The latest outbreak of this contagion is the growing wave of corporate inversions, where American companies move their headquarters out of the U.S. in pursuit of lower tax rates.
The inversion virus now seems to be multiplying every few days. Medtronic, Mylan, Mallinckrodt and many more deals have either occurred recently or are currently in the works. Medtronic’s proposed $42 billion merger with Covidien was record-breaking when it was announced in June. But the ink in the record books had barely dried when AbbVie announced its intention on Friday to acquire Shire for almost $55 billion. According to the July 15th edition of Marketplace, “What’s going on now is a feeding frenzy … Every investment banker now has a slide deck that they’re taking to any possible company and saying, ‘you have to do a corporate inversion now, because if you don’t, your competitors will.’”
Over the past few months, we’ve seen a handful of legislative proposals to address the issue of inversions. Most of them are punitive and retroactive. Rather than incentivizing American companies to remain in the U.S., these bills would build walls around U.S. corporations in order to keep them from inverting. …
Hatch Statement at Finance Committee Hearing on International Taxation (excerpt):
For example, in 2013, the OECD launched its Base Erosion & Profit Shifting, or BEPS, project. While we appreciate the OECD’s efforts in bringing tax authorities together to discuss and work through issues, many of us have expressed concern that the BEPS project could be used by other countries as a way to increase taxes on American taxpayers. ….
This approach, in my view, completely misses the mark.
While it may put a stop to traditional inversions it could actually lead to more reverse acquisition inversions as our U.S. multinationals would, under this approach, become more attractive acquisition targets for foreign corporations.
Whether it is traditional corporate acquisition inversion or a reverse acquisition inversion, the result is the same: continued stripping of the U.S. tax base. …
Ron Wyden (D-OR)
Posted in OECD, Tax Policy | Tagged: BEPS, international tax reform, inversion, OECD | 1 Comment »
Posted by William Byrnes on July 23, 2014
FATCA Q&A Updated by IRS – the updates are below. Link to New and Updated FAQs have been Posted with Regard to QI Agreements, Financial Institutions, and General Compliance
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).
Posted in FATCA | Tagged: FATCA, GIIN, IGA, W-8BEN-E | Leave a Comment »
Posted by William Byrnes on July 23, 2014
While finding the most suitable products to meet a client’s retirement income goals is fundamental to developing an appropriate retirement planning strategy, discovering the most desirable mixture of product features can prove equally critical.
In this vein, advisors should take note that indexed annuity sales have gained steam in recent months. New studies suggest that while the base product itself may be attractive to many, in the vast majority of cases it is the optional features that are actually propelling sales.
Understanding how the guarantee features that can accompany indexed annuities have made these products competitive against more traditional bank-sponsored products has, therefore, become crucial to determining how these options can help an indexed annuity rise to the occasion.
Read the intelligence about guaranteed lifetime withdrawal benefits (GLWBs) and annuities of Professor William Byrnes and Robert Bloink at ThinkAdvisor
“Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience. The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.
Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction. For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.
If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com
Posted in Retirement Planning, Wealth Management | Tagged: annuities, Annuity, GLWBs, Guaranteed Lifetime Withdrawal Benefit Riders | Leave a Comment »
Posted by William Byrnes on July 22, 2014
Two global banks, Deutsche Bank and Barclays Bank, and more than a dozen hedge funds, such as RenTec, misused a complex financial structure to claim billions of dollars in unjustified tax savings and to avoid leverage limits that protect the financial system from risky debt, a Senate Subcommittee investigation has concluded. The improper use of this structured financial product, known as basket options, is the subject of a 93-page report and 5 hours of testimony.
Please see the story and links to releavnt document and recorded webcast http://lawprofessors.typepad.com/intfinlaw/2014/07/hedge-funds-using-basket-options-to-recharacterize-income-as-long-term-capital-gain-bypass-leverage-.html
Posted in Tax Policy | Tagged: barclays bank, basket options, Deutsche Bank, structured financial product | Leave a Comment »
Posted by William Byrnes on July 22, 2014
Jing Wang, 51, the former Executive Vice President and President of Global Business Operations for Qualcomm Inc., today pleaded guilty to insider trading in shares of Qualcomm and Atheros Communications Inc. Wang also pleaded guilty to laundering the proceeds of his insider trading using an offshore shell company.
According to court documents, … read the entire story at http://lawprofessors.typepad.com/intfinlaw/2014/07/former-senior-executive-of-qualcomm-pleads-guilty-to-insider-trading-and-money-laundering.html
Posted in Money Laundering | Tagged: insider trading, Money Laundering, qualcomm | 1 Comment »
Posted by William Byrnes on July 22, 2014
Two global banks and more than a dozen hedge funds misused a complex financial structure to claim billions of dollars in unjustified tax savings and to avoid leverage limits that protect the financial system from risky debt, a Senate Subcommittee investigation has found.
to watch the webcast and dowload the report, go to http://lawprofessors.typepad.com/intfinlaw/2014/07/hedge-funds-using-basket-options-to-recharacterize-income-as-long-term-capital-gain-bypass-leverage-.html
Posted in Financial, Tax Policy | Tagged: basket options, long term capital gains, tax | Leave a Comment »
Posted by William Byrnes on July 22, 2014
An esteemed FATCA expert Haydon Perryman, who is director of FATCA compliance solutions of Strevus, designed the FATCA programs for two Global Banks, and managed the FATCA programs for over three years for Barclays, Lloyds Banking Group and RBS.
He shares his thoughts about designing a FATCA compliance system in his latest podcast: http://justcast.herokuapp.com/shows/haydon-perryman-gatcast/audioposts/7063
Posted in FATCA | Tagged: FATCA, IGA | Leave a Comment »
Posted by William Byrnes on July 21, 2014
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Instructions for withholding agents
The IRS released the new instructions to supplement the instructions for the W–8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY, and provide, for each form, notes to assist 
withholding agents and FFIs in validating the forms for chapter 3 and 4 purposes in addition to outlining the due diligence requirements applicable to withholding agents for establishing a beneficial owner’s foreign status and claim for reduced withholding under an income tax treaty.
In order to document an account holder or other payee, a withholding agent or an FFI may need to obtain a withholding certificate (i.e., Form W-8 series) to establish the chapter 4 status of a payee or an account holder or the payee’s chapter 3 status, or to validate a payee’s or an account holder’s claim of foreign status when there are U.S. indicia associated with the payee or the account.
Who is a withholding agent?
Any person, U.S. or foreign, in whatever capacity acting, that has control, receipt, custody, disposal, or payment of an amount subject to withholding for chapter 3 purposes or a withholdable payment for chapter 4 purposes is a withholding agent. The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies.
What if more than one person qualifies as a withholding agent for a payment?
If several persons qualify as withholding agents for a single payment, the tax required to be withheld must only be withheld once. Generally, the person who pays (or causes to be paid) an amount subject to withholding under chapter 3 or a withholdable payment to the foreign person (or to its agent) must withhold.
Chapter 3 and Form 1099 Responsibilities
A withholding agent making a payment of U.S. source interest, dividends, rents, royalties, commissions, nonemployee compensation, other FDAP gains, profits, or income, and certain other amounts (including broker and barter exchange transactions, and certain payments made by fishing boat operators) must generally obtain from the payee either a Form W-9 or a Form W-8.
Chapter 4 Responsibilities
A withholding agent making a chapter 4 withholdable payment to an entity payee must establish the chapter 4 status of the entity payee to determine if withholding applies by generally obtaining a Form W-8 that you can reliably associate with the payment.
A withholding agent can reliably associate a payment with a Form W-8 for purposes of establishing a payee’s chapter 4 status if, prior to the payment, the withholding agent obtains a valid form that contains the information required for chapter 4 purposes that can reliably determine how much of the payment relates to the documentation, and the withholding agent has no actual knowledge or reason to know that any of the information, certifications, or statements in, or associated with, the documentation are unreliable or incorrect for chapter 4 purposes.
NPFFI
If making a withholdable payment to an entity BUT cannot reliably associate the payment with a Form W-8 or other permitted documentation that is valid for chapter 4 purposes, then treat the entity payee as a nonparticipating FFI.
NFFE
If a withholdable payment to an NFFE, then withhold unless the NFFE (or other entity that is the beneficial owner of the payment) certifies on Form W-8 that it does not have any substantial U.S. owners or identifies its substantial U.S. owners or is a class of NFFE that certifies its status on Form W-8 to obtain an exemption from these requirements.
Requesting & Validating Form W-8
Request a Form W-8 described in these instructions from any person to whom making a payment that can be presumed or otherwise believed to be a foreign person.
Request Form W-8BEN from any foreign individual to whom you are making a payment subject to chapter 3 withholding or a withholdable payment if he or she is the beneficial owner of the income, whether or not he or she is claiming a reduced rate of, or exemption from, withholding (including under an applicable income tax treaty).
Request Form W-8BEN-E from any foreign entity to which you are making a payment of an amount subject to chapter 3 withholding or a withholdable payment if the entity is the beneficial owner of the income, whether or not it is claiming a reduced rate of, or exemption from, withholding (including under an applicable income tax treaty). For a Form W-8BEN-E that is associated with a withholdable payment to a foreign entity, obtain a valid chapter 4 status for the entity to the extent required for chapter 4 purposes to determine if withholding applies under chapter 4, and must obtain an applicable certification in Parts IV through XXVIII unless provided otherwise in the instructions for Form W-8BEN-E.
Request the form before making a payment so that the form can be reviewed when the payment is made. A completed Form W-8 must be reviewed for completeness and accuracy with respect to the claims made on the form. This responsibility extends to the information attached to Form W-8, including for Form W-8IMY, withholding statements, beneficial owner withholding certificates, or other documentation and information to the extent such documentation is required to be associated with the Form W-8IMY.
A withholding agent or payer that fails to obtain a Form W-8 or Form W-9 and fails to withhold as required under the presumption rules may be assessed tax at the 30% rate or backup withholding rate of 28%, as well as interest and penalties for lack of compliance.
FFI’s Requirement To Request Form W-8 To Document Account Holders
If an FFI maintains an account for an account holder, the FFI may be required to perform due diligence procedures to identify and document a U.S. account holder or entity account holder even if not making a payment that is a withholdable payment (or an amount subject to chapter 3 withholding) to the account holder. Forms W-8 may be used to document the chapter 4 status of a foreign account holder regardless of whether you make a payment that is a withholdable payment or an amount subject to chapter 3 withholding to the account holder, and to validate a claim of foreign status made by the account holder when the account has certain U.S. indicia.
Alternative Certifications Under an Applicable IGA
If an FFI covered under a Model 1 IGA or Model 2 IGA is using Form W-8BEN-E to document account holders pursuant to the due diligence requirements of Annex I of an applicable IGA, then may be permitted to request alternative certifications from the account holders in accordance with the requirements of and definitions applicable to the IGA to instead of the certifications in Parts IV through XXVIII of the Form W-8BEN-E (which are based on the regulations under chapter 4).
If covered by an IGA with alternative certifications, then the FFI should provide those certifications to account holders that provide a Form W-8BEN-E, and the account holder should attach the completed certification to the Form W-8BEN-E in lieu of completing a certification otherwise required in Parts IV through XXVIII of the form. In such a case, the FFI must provide a written statement to the account holder stating that the FFI has has provided the alternative certification to meet the FATCA due diligence requirements under an applicable IGA and must associate the certification with the Form W-8BEN-E.
A withholding agent (including an FFI) may also request and rely upon an alternative certification from an entity account holder to establish that the account holder is an NFFE (rather than a financial institution) under an applicable IGA. An entity providing such a certification will still be required, however, to provide its chapter 4 status (i.e., the type of NFFE) in Part I, line 5, as determined under the regulations or IGA, whichever is applicable to the withholding agent.
Alternative certification under an applicable IGA may be relied upon on unless known or have reason to know the certification is incorrect.
Substitute Forms W–8
A withholding agent may develop and use its own Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY (a substitute form) if its content is substantially similar to the IRS’s official Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY (to the extent required by these instructions) and it satisfies certain certification requirements. The withholding agent may even develop and use a substitute form that is in a foreign language, provided that an English translation of the form and its contents is made available to the IRS upon request. Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY may be combined into a single substitute form. A form that satisfies these substitute forms requirements may be treated as a similar agreed form for purposes of an applicable Model 1 IGA, if the partner jurisdiction does not decline such treatment.
Requirements for Obtaining and Verifying a Global Intermediary Identification Number (GIIN)
A Form W-8BEN-E from an entity payee that is identified in Part I, line 1, that is claiming chapter 4 status as a participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (including a reporting Model 1 FFI), or a nonreporting IGA FFI under a Model 2 IGA, provided that the nonreporting IGA FFI is treated as a registered deemed-compliant FFI under the Model 2 IGA, must include and have verified the entity’s GIIN against the published IRS FFI list. If a withholdable payment to a direct reporting NFFE, then obtain and verify the direct reporting NFFE’s GIIN against the published IRS FFI list.
Due Diligence Requirements
The withholding agent is responsible for ensuring that all information relating to the type of income for which Form W-8 is submitted is complete and appears to be accurate and, for an entity providing the form, includes a chapter 4 status (if required as described above). In general, a withholding agent may rely on the information and certifications provided on the form (including the status of the beneficial owner as an individual, corporation, etc.) unless it has actual knowledge or reason to know that the information is unreliable or incorrect.
Reason to know that the information is unreliable or incorrect exists if the withholding agent has knowledge of relevant facts or statements contained in the withholding certificate or other documentation that would cause a reasonably prudent person in to question the claims made.
Reason to know
Reason to know that a Form W-8 is unreliable or incorrect materializes if the Form W-8 is incomplete with respect to any item that is relevant to the claims made, the form contains any information that is inconsistent with the claims made, the form lacks information necessary to establish that the beneficial owner is entitled to a reduced rate of withholding, or the withholding agent has other account information that is inconsistent with the claims made.
Period of Validity
Generally, a Form W-8 is valid from the date signed until the last day of the third succeeding calendar year.
—> Instructions for Requester Available here <—-
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).
Posted in FATCA | Tagged: and W–8IMY, W-8BEN, W-8BEN-E, W–8ECI, W–8EXP | Leave a Comment »
Posted by William Byrnes on July 21, 2014
The OECD today released the full version of a new global standard for the exchange of information between jurisdictions.
I have posted Notes on the Common Reporting Standard for Automatic Information Exchange on my new International Financial Professor Law Blog at
CRS Due Diligence Standards similar but not identical to FATCA
The CRS contains a reporting and a due diligence standard that underpins the automatic exchange of information, very similar to FATCA.
Due diligence distinguishes between pre-existing accounts and new accounts, individual accounts and entity accounts.
Individual Accounts
Pre-existing accounts do not have a de minimis amount but are divided between low value and high value accounts.
Low Value
Low value accounts have a permanent residency based test based on documentation or, failing that, based upon indicia. If indicia are found, then either the account holder must provide self-certification or the account must be reported to all jurisdictions to which the indicia attach.
High Value
High value accounts are defined as having an aggregate balance or value of $1 million US dollars by December 31 of a calendar year. High value accounts require a paper based search as well as the test of actual knowledge of the relationship manager.
New Accounts
All new individual accounts (no de minimis) require self-certification, with confirmation of its reasonableness, which can be performed at the time of account onboarding.
Entity Accounts
Preexisting entity accounts
Preexisting entity accounts firstly need to determine if the entity is a reportable person, generally using available AML/KYC information, and if such information is not available, then a self certification will be required from the entity.
However, a preexisting entity account de minimis size of US$250,000 is available at the option of the jurisdiction adopting the CRS.
Passive entity
If the entity is a passive entity then the residency of the controlling members of the entity must be determined. Passive entity status may be determined by self-certification unless the financial institution has contra-indication information, or information is otherwise publicly available to refute the self-certification. Controlling members of the entity may be determined based upon the AML/KYC information available. Control must be interpreted in a manner consistent with the FATF standard.
New entity accounts
For new accounts, the de minimis option is not available because self-certification is easily obtainable at account opening.
See full comments at http://lawprofessors.typepad.com/intfinlaw/2014/07/the-oecd-today-released-the-full-version-of-a-new-global-standard-for-the-exchange-of-information-between-jurisdictions.html
free Lexis FATCA Compliance chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).
Posted in FATCA, OECD | Tagged: AEOI, common reporting standards, CRS, exchange of information, FATCA, GATCA, OECD | Leave a Comment »
Posted by William Byrnes on July 21, 2014
The UK HMRC announced on July 17, 2014 that its High Net Worth Unit (HNWU) has brought in £1bn in compliance yield (approximately US$1.7 billion).
The HNWU, which was set up in 2009, is made up of about 400 staff in 31 customer teams. HNWU deals with the tax affairs of the 6,200 wealthiest individual customers of HM Revenue and Customs (HMRC) – those with a net worth of £20 million or more.
When the unit takes ownership of a customer’s tax affairs, both the customer and their authorised tax agent or adviser will receive a letter welcoming them to HNWU. This letter also contains contact details for their Customer Relationship Manager. The relationship manager has detailed oversight over the customer and develops a close understanding of the wealthy individuals tax risks.
The High Net Worth Unit (HNWU) deals with the tax affairs of HM Revenue & Customs (HMRC) wealthiest individual customers. By focusing primarily on this customer group, the unit aims to:
The program, through good customer engagement with a focus on influencing behaviour, has led to voluntary compliance of the majority of customers, enabling HMRC to allocate its audit resources against noncompliant taxpayers.
What is cooperative compliance?
Cooperative compliance means enhancing the relationship between HMRC and our customers to deliver an outcome where both parties work together to achieve the highest possible level of compliance at appropriate cost. This approach is increasingly being recommended as a feature for revenue organisations for customers with complex affairs. It reflects the growing mutual interest in being as certain as possible about tax liabilities and in ensuring that there are no surprises in any later reviews of these liabilities.
Cooperative compliance is not any kind of preferential treatment which compromises the legal position. In essence it forms part of the compliance risk management process – adding deeper and broader understanding of the world in which your client operates to our ongoing dialogue. This approach is one that we wish to have with our HNWU customers. It does of course rely on the foundation stones of a relationship characterised by trust, openness and transparency. We want to move away from only using reactive time consuming formal enquiries to a position where we can have productive pre-filing discussions which help us better understand our customers’ actions, processes and intentions.
Certainty of Positions
… The objective is to give earlier assurance, where appropriate, that we don’t intend to open an enquiry or don’t require further information. Where we are able, we will write to you and your client if no further action is needed to let you know this, rather than letting you wait until the end of the statutory enquiry period. This is more likely to be the case where we have established an ongoing dialogue about your client’s tax affairs. Customers who participated in the trial were positive about the benefits of this approach.
Posted in Compliance, Tax Policy | Tagged: High Net Worth Unit, HMRC, HNWI, HNWU, IRS. compliance | Leave a Comment »
Posted by William Byrnes on July 21, 2014
On July 16, 2014 Nina Olson, the Taxpayer Advocate released her midyear report to Congress. Volume 2 of the report contains the IRS’s responses to the administrative recommendations the National Taxpayer Advocate made in her 2013 annual report to Congress, along with additional TAS comments.
Individual Taxpayer Identification Numbers (ITINs)
The Taxpayer Advocated noted that in November 2012, the IRS announced permanent changes to its application procedures for ITINs. As a result, found the Taxpayer Advocate, dependent ITIN applicants now face a substantial burden because they can no longer use a certifying acceptance agent (CAA) to certify their documents. Dependents must mail original documents or copies certified by the issuing agency, or have the documents certified at an IRS taxpayer assistance center (TAC) or at one of just four U.S. tax attaché offices overseas.
What is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a range of 70-88 in the fourth and fifth digit. The range was extended to include 900-70-0000 through 999-88-9999, 900-90-0000 through 999-92-9999 and 900-94-0000 through 999-99-9999.
The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA). ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.
What is an ITIN used for?
ITINs are for federal tax reporting only, and are not intended to serve any other purpose. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs). See my previous article on completing the W-8BEN.
An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.
Who needs an ITIN?
IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN. IRS processes returns showing SSNs or ITINs in the blanks where tax forms request SSNs. IRS does not accept, and will not process, forms showing “SSA”, 205c”, “applied for”, “NRA”, & blanks, etc.
Other examples of individuals who need ITINs include:
If a person does not have a SSN and is not eligible to obtain a SSN, but has a requirement to furnish a federal tax identification number or file a federal income tax return, then that person must apply for an ITIN. By law, an alien individual cannot have both an ITIN and a SSN.
Why Are ITIN Applications Falling, ITIN Application Rejections Increasing?
From January through October 2013, applicants filed only one million ITIN applications with returns, compared to 1.8 million during the same period in 2012. During this period, ITIN applications and accompanying returns declined nearly 50%, while the percentage of applications rejected by the IRS soared to 50.2%.
The Taxpayer Advocate reports that an explanation for these numbers is the burden caused by the new ITIN procedures.
ITIN applicants report problems, including a lack of communication about why the IRS suspended or rejected an application, an inability to speak with IRS employees, a lack of notice about the status of the application, the rejection of applications with legitimate supporting documents, and lost original documents. The IRS’s policy of generally accepting ITIN applications only during the filing season forces the IRS to process applications under short timelines and does not provide sufficient time to review them for potential fraud.
The IRS stated in response that it does not plan to pursue electronic filing of the ITIN application. The IRS provided several reasons why its Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN) is not a suitable candidate for electronic filing:
In order to strengthen the ITIN program, when requesting an ITIN taxpayers are required to submit documentation that supports the information provided on the Form W-7. The applicant can submit original documents or certified copies from the issuing agency. The attachment of an electronic copy of the documents, such as a .pdf version of the supporting documentation, will not allow IRS to authenticate the documents as outlined in IRM 3.21.263. In addition, taxpayers are required to submit their original tax return(s) for which the ITIN is needed with the W-7 attached. The Modernized e-File (MeF) system is not able to accept both the W-7 and associated tax return(s) in the same transaction.
IRS Cancelling Unused ITINs
Individual Taxpayer Identification Numbers (ITINs) will expire if not used on a federal income tax return for five consecutive years, the Internal Revenue Service announced today. To give all interested parties time to adjust and allow the IRS to reprogram its systems, the IRS will not begin deactivating ITINs until 2016.
The new, more uniform policy applies to any ITIN, regardless of when it was issued. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns. The new policy will ensure that anyone who legitimately uses an ITIN for tax purposes can continue to do so, while at the same time resulting in the likely eventual expiration of millions of unused ITINs.
ITINs play a critical role in the tax administration system and assist with the collection of taxes from foreign nationals, resident and nonresident aliens and others who have filing or payment obligations under U.S. law. Designed specifically for tax administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number.
Under the new policy:
Practical Compliance Aspects of FATCA
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA),
Posted in Compliance, FATCA, W-8BEN-E | Tagged: FATCA, ITIN, taxpayer identification number, TIN | Leave a Comment »
Posted by William Byrnes on July 20, 2014
Benjamin M. Lawsky, Superintendent of Financial Services, announced July 17, 2014 that the New York State Department of Financial Services (DFS) has issued for public comment a proposed “BitLicense” regulatory framework for New York virtual currency businesses. The proposed regulatory framework – which is the product of a nearly year-long DFS inquiry, including public hearings that the Department held in January 2014 – contains consumer protection, anti-money laundering compliance, and cyber security rules tailored for virtual currency firms.
The new DFS BitLicenses will be required for firms engaged in the following virtual currency businesses:
The license is not requiredfor merchants or consumers that utilize Virtual Currency solely for the purchase or sale of goods or services; or those firms chartered under the New York Banking Law to conduct exchange services and are approved by DFS to engage in Virtual Currency business activity.
Key requirements for firms holding BitLicenses include:
See full press release here.
Posted in Compliance, Money Laundering | Tagged: BIT license, Bitcoin, new york financial services department, virtual currency | Leave a Comment »
Posted by William Byrnes on July 19, 2014
A three judge U.S. Court of Appeals for the District of Columbia panel unanimously upholding the District Court decision that Stanford International Bank CD Investors do not meet the definition of “customer” under the Securities Investor Protection Act (SIPA). Thus, the Securities Investor Protection Corporation (SIPC) will not cover the losses of Stanford investors, up to the maximum statutory amount of $500,000 for securities.
What is the SIPC?
SIPC was created under the Securities Investor Protection Act as a non-profit membership corporation. SIPC oversees the liquidation of member broker-dealers that close when the broker-dealer is bankrupt or in financial trouble, and customer assets are missing.
In a liquidation under the Securities Investor Protection Act, SIPC and the court-appointed Trustee work to return customers’ securities and cash as quickly as possible. Within limits, SIPC expedites the return of missing customer property by protecting each customer up to $500,000 for securities and cash (including a $250,000 limit for cash only).
Although created under a federal law, SIPC is not an agency or establishment of the United States Government, and it has no authority to investigate or regulate its member broker-dealers.
What is the SEC suing the SIPC?
The Securities Investor Protection Act of 1970, 15 U.S.C. § 78ggg SEC functions states that:
In the event of the refusal of SIPC to commit its funds or otherwise to act for the protection of customers of any member of SIPC, the Commission may apply to the district court of the United States in which the principal office of SIPC is located for an order requiring SIPC to discharge its obligations under this chapter and for such other relief as the court may deem appropriate to carry out the purposes of this chapter.
What are the facts?
7,000 investors, on the advice of an SEC registered broker dealer Stanford Group Company (Houston, Texas) (“SGC”) that was a member of the SIPC, invested in certificates of deposit (CDs) issued by an Antigua based Stanford International Bank LLC (“SIBL”), not a member of the SIPC.
The CDs are debt assets that promised a fixed rate of return. The SIBL CD disclosure statements stated that the products are not covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance [sic] Corporation.
What is the central issue?
The central issue in this appeal is whether investors who purchased SIBL CDs at the suggestion of SGC employees qualify as SGC “customers” under the SIPA, that SIPC may be ordered to cover their losses up to the statutory maximum.
What did the SIPC argue to exclude its protection?
In SIPC’s view, the CD investors were not SGC “customers” within the meaning of the Act, a precondition to liquidation of SGC. SIPC explained that the Act “protects the ‘custody’ function that brokerage firms perform for customers.” Here, SIPC concluded, the circumstances fell outside the Act’s custody function because SGC itself never held investors’ cash or securities in connection with their purchase of the CDs. Rather, “cash for the purpose of purchasing CDs . . . was sent to SIBL, which is precisely what the customer intended.” As for the “physical CDs,” they presumably “were issued to, and delivered to” the investors, and SGC did not “maintain[] possession or control of the CDs.” (citation removed)
Why did the SEC seek to extend SIPC protection?
SEC reached the opposite conclusion. In June 2011, the Commission issued a formal analysis stating that investors who had purchased SIBL CDs at the urging of SGC employees qualified as SGC “customers” under the Act. Citing evidence that Stanford had “structured the various entities in his financial empire . . . for the principal, if not sole,
purpose of carrying out a single fraudulent Ponzi scheme,” the Commission determined that the “separate existence” of SIBL and SGC “should be disregarded.” (citation removed) ….
The Commission grounds its argument for disregarding the corporate separateness of SIBL and SGC in the doctrine of “substantive consolidation,” an equitable doctrine typically applied in bankruptcy proceedings. “In general, substantive consolidation results in the combination of the assets of [two] debtors into a single pool from which the claims of creditors of both debtors are satisfied ratably.” 2 Collier on Bankruptcy ¶ 105.09[3], at 105-110–11…. Courts have employed a “variety” of tests when assessing whether to grant substantive consolidation. (citation removed) ….
The doctrine of substantive consolidation has been applied in SIPA liquidations. In New Times I, for instance, the bankruptcy court substantively consolidated a SIPC-member
broker undergoing liquidation with a related, non-broker entity. The assets of the related entity were brought into the SIPC member’s liquidation estate, enlarging the available pool for customer recovery. Investors with cash on deposit with the non-broker entity were treated as “customers” in the liquidation, even though the member broker itself never held those investors’ funds. (citation removed) ….
Who is a customer under the SIPA?
§78lll Definitions (B) Included Persons
The term ‘customer’ includes-
(i) any person who has deposited cash with the debtor for the purpose of purchasing securities;
(ii) any person who has a claim against the debtor for cash, securities, futures contracts, or options on futures contracts received, acquired, or held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission; and
(iii) any person who has a claim against the debtor arising out of sales or conversions of such securities.
(C) Excluded Persons
The term ‘customer’ does not include any person, to the extent that-
(i) the claim of such person arises out of transactions with a foreign subsidiary of a member of SIPC; or
(ii) such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor, or is subordinated to the claims of any or all creditors of the debtor, notwithstanding that some ground exists for declaring such contract, agreement, or understanding void or voidable in a suit between the claimant and the debtor.
What analysis did the District Court lend to the term customer?
In SEC v. Sec. Investor Prot. Corp., 872 F. Supp. 2d 1 (D.D.C. 2012) Judge Robert Wilkins analyzed this definition of customer by looking to leading treatises.
As summarized by one leading treatise, the SIPA statute “attempts to protect customer interests in securities and cash left with broker-dealers….” Loss & Seligman, Securities Regulation ¶ 8.B.5.a, p. 3290 (3rd ed.2003) (citing legislative history) (emphasis added). Another prominent treatise states that “SIPA is designed to protect securities investors against losses stemming from the failure of an insolvent or otherwise failed broker-dealer to properly perform its role as the custodian of customer cash and securities.” 1–12 Collier on Bankruptcy, P. 12.01 (16th ed.) (emphasis added). The usage of the phrase “left with” in the first description and of the term “custodian” in the second description is notable—both usages are in accordance with the plain meaning of statutory term “deposit,” which is “to place esp. for safekeeping or as a pledge” or “[to] giv[e] money or other property to another who promises to preserve it or to use it and return it in kind.” (citation omitted)
Accordingly, it is well settled that “the critical aspect of the ‘customer’ definition is the entrustment of cash or securities to the broker-dealer for the purposes of trading securities.” The “customer” definition has therefore been described as “embodying a common-sense concept: An investor is entitled to compensation from the SIPC only if he has entrusted cash or securities to a broker-dealer who becomes insolvent; if an investor has not so entrusted cash or securities, he is not a customer and therefore not entitled to recover from the SIPC trust fund.” To prove entrustment, the claimant must prove that the SIPC member actually possessed the claimant’s funds or securities. (citation omitted)
What did the Appeals Court’s rule?
When a brokerage firm faces insolvency, the cash and securities it holds for its customers can become ensnared in bankruptcy liquidation proceedings or otherwise be put at risk. Congress established the Securities Investor Protection Corporation (SIPC) to protect investors’ assets held on deposit by financially distressed brokerage firms. SIPC can initiate its own liquidation proceedings with the aim of securing the return of customers’ property held by the brokerage. SIPC, however, possesses authority to undertake those protective measures only with respect to member brokerage firms. Its authority does not extend to non-member institutions.
In this case, the Securities and Exchange Commission seeks a court order compelling SIPC to liquidate a member broker dealer, Stanford Group Company (SGC). SGC played an integral role in a multibillion-dollar financial fraud carried out through a web of companies. SGC’s financial advisors counseled investors to purchase certificates of deposit from an Antiguan bank that was part of the same corporate family. The Antiguan bank’s CDs eventually became worthless. The massive Stanford fraud spawned a variety of legal actions in a number of arenas, the bulk of which are not at issue here. This case involves the authority of a specific entity—SIPC—to take measures within its own statutorily bounded sphere. As to that issue, because the Antiguan bank, unlike SGC, was not a SIPC member, SIPC had no ability to initiate measures directly against the bank to protect the property of investors who purchased the bank’s CDs.
The question in this case is whether SIPC can instead be ordered to proceed against SGC—rather than the Antiguan bank—to protect the CD investors’ property. It is common ground that SIPC can be compelled to do so only if those investors qualify as “customers” of SGC within the meaning of the governing statute. SIPC concluded that they do not, and the district court agreed. The court reasoned that the investors obtained the Antiguan bank’s CDs by depositing funds with the bank itself, not with SGC, and they thus cannot be considered customers of the latter. We agree that the CD investors do not qualify as customers of SGC under the operative statutory definition. We therefore affirm the denial of the application to order SIPC to liquidate SGC.
What was the Appeals Court analysis for the term ‘Customer”?
To come within the fold of SIPA’s protections, an investor thus ordinarily must demonstrate both that the broker “actually . . . received, acquired or held the claimant’s property, and that the transaction giving rise to the claim . . . contain[ed] the indicia of a fiduciary relationship” between the investor and the broker. 1 Collier on Bankruptcy ¶ 12.12[2], at 12-50. An investor’s “customer” status is evaluated on an asset-by-asset basis and may change over time.
Here, insofar as the analysis focuses on the entity that in fact held custody over the property of the SIBL CD investors, the investors fail to qualify as “customers” of SGC under the statutory definition. That is because SGC never “received, acquired, or held” the investors’ cash or securities. With regard to the investors’ cash, it is undisputed that investors at no time deposited funds with SGC to purchase the SIBL CDs. The funds instead went to SIBL. (citation omitted)
What about the SEC’s Argument for group consolidation?
Even if we were to consolidate, however, SIBL CD investors would not be “customers” of a SIPC-member entity under the statutory definition. The Act specifically excludes from “customer” status “any person, to the extent that . . . such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor.” We, like other courts, understand that provision to establish that “a claimant cannot qualify for customer status under SIPA to the extent that he or she is a lender rather than an investor.” As the Eleventh Circuit has explained, “[c]ash that is simply lent to the brokerage cannot form the basis of a SIPA customer claim because the statute’s definition of ‘customer’ excludes individuals whose claims are for ‘cash . . . which . . . is part of the capital of the debtor.’” (citation omitted)
Here, investors who purchased SIBL CDs lent funds to SIBL that became part of SIBL’s capital: Those investors gave cash to SIBL in exchange for a promise to be repaid with a fixed rate of return. The investors invested “in,” not “through,” SIBL. … Under a consolidated view, investors who purchased SIBL CDs lent money to the consolidated SIBL/SGC entity, forming a “creditor-debtor arrangement.” The CD proceeds thus became part of the consolidated entity’s “capital,” triggering the statutory exclusion from “customer” status for lenders. (citation omitted)
Relevant Sources and Documents
SECURITIES AND EXCHANGE COMMISSION (SEC) v. SECURITIES INVESTOR PROTECTION CORPORATION (SIPC), No. 12-5286 (July 18, 2014 D.C. Court of Appeals) The decision is available here SEC v SPIC (Stanford Fraud) DC Appeals 7-18-2014
SIPC has a website regarding the Stanford case here. SIPC’s statement about the Appeals Court decision is here.
Posted in Financial, Financial Crimes | Tagged: SEC, Securities Investors Protection Corporation, SIPA, SIPC, Stanford | Leave a Comment »
Posted by William Byrnes on July 18, 2014
On July 14, 2014 the Securities and Exchange Commission (SEC) filed a public administrative and cease-and-desist proceedings against Ernst & Young (E&Y) for E&Y’s violation of audit independence conduct regarding legislative lobbying on behalf of its audit clients.
E&Y has agreed to pay disgorgement of $1,240,000, together with prejudgment interest thereon of $351,925.98, and a civil money penalty of $2,480,000, for a total of $4,071,925.98 and it has agreed to cease & desist the activity. See http://www.sec.gov/litigation/admin/2014/34-72602.pdf
The SEC public administrative and cease-and-desist proceedings against E&Y arose out of certain legislative advisory services provided by Washington Council EY (“WCEY”), which has been part of EY since 2000. Prior to 2009, certain conduct related to WCEY’s provision of legislative advisory services violated the independence rules with respect to two of EY’s SEC-registrant audit clients.
WCEY sent letters urging passage of bills to congressional staff on behalf of one of its clients. These bills were important to this client’s business interests. WCEY also asked congressional staff to insert into a bill a provision favorable to this client.
For another audit client, WCEY attempted to persuade congressional offices to withdraw their support for legislation detrimental to that client’s business interests. In addition, WCEY worked closely with congressional staff in drafting an alternative bill more favorable for the client. WCEY also marked up a draft of the alternative bill, inserting specific language written by the client and sent the mark-up to congressional staff.
Despite providing the services described herein, E&Y repeatedly represented that it was “independent” in audit reports issued the clients’ financial statements.
By doing so, E&Y violated Rule 2-02(b)(1) of Regulation S-X and caused the clients to violate Section 13(a) of the Exchange Act and Rule 13a-1. E&Y’s conduct also constituted improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
Posted in Compliance | Tagged: audit independence, Conflict of Interest, E&Y, Ernst & Young, lobbying, SEC | 1 Comment »
Posted by William Byrnes on July 18, 2014
After a nine-year criminal investigation by the DEA and FDA, on July 17, 2014 the US Attorney for the Northern District of California filed a criminal indictment by a federal grand jury against FedEx Corporation, FedEx Express, Inc., and FedEx Corporate Services, Inc., for conspiracies to traffic in controlled substances and misbranded prescription drugs for its role in distributing controlled substances and prescription drugs for illegal Internet pharmacies.
If found guilty, the Fed Ex defendants face a maximum sentence of 5 years of probation, and a fine of up to $1.6 billion representing twice the gross gain derived from the offense, alleged in the indictment to be at least $820 million. FedEx would also be liable for restitution to victims of the crime, as well as forfeiture of the gross proceeds of the offense and any facilitating property.
The alleged actions taken by Fed Ex to traffic in controlled substances include:
The FedEx indictment is available by link here. The press release is excerpted below.
… In 2004, FedEx established an Online Pharmacy Credit Policy requiring that all online pharmacy shippers be approved by the Credit Department prior to opening a new account. The stated reason for this policy was that many Internet pharmacies operated outside federal and state regulations over the sale of controlled drugs and many sites had been shut down by the government without warning, leaving a large balance owed to FedEx. According to the indictment, FedEx also established a Sales policy in which all online pharmacies were assigned to a “catchall” classification to protect the commission-based compensation of its sales professionals from the volatility caused by online pharmacies moving shipping locations often to avoid detection by the DEA.
According to the indictment, as early as 2004, FedEx knew that it was delivering drugs to dealers and addicts. FedEx’s couriers in Kentucky, Tennessee, and Virginia expressed safety concerns that were circulated to FedEx Senior management, including that FedEx trucks were stopped on the road by online pharmacy customers demanding packages of pills, that the delivery address was a parking lot, school, or vacant home where several car loads of people were waiting for the FedEx driver to arrive with their drugs, that customers were jumping on the FedEx trucks and demanding online pharmacy packages, and that FedEx drivers were threatened if they insisted on delivering packages to the addresses instead of giving the packages to customers who demanded them. In response to these concerns, FedEx adopted a procedure whereby Internet pharmacy packages from problematic shippers were held for pick up at specific stations, rather than delivered to the recipient’s address.
FedEx is charged in the indictment with conspiring with two separate but related Internet pharmacy organizations: the Chhabra-Smoley Organization, from 2000 through 2008, and Superior Drugs, from 2002 through 2010. In each case, FedEx is alleged to have knowingly and intentionally conspired to distribute controlled substances and prescription drugs, including Phendimetrazine (Schedule III); Ambien, Phentermine, Diazepam, and Alprazolam (Schedule IV), to customers who had no legitimate medical need for them based on invalid prescriptions issued by doctors who were acting outside the usual course of professional practice.
According to the indictment, FedEx began delivering controlled substances and prescription drugs for Internet pharmacies run by Vincent Chhabra, including RxNetwork and USA Prescription, in 2000. When Chhabra was arrested in December of 2003 for illegally distributing controlled substances based on a doctor’s review of an on-line questionnaire, Robert Smoley took over the organization and continued the illegal distribution of controlled substances and prescription drugs through FedEx.
According to the indictment, FedEx began delivering controlled substances and prescription drugs for Superior Drugs in 2002. FedEx’s employees knew that Superior Drugs filled orders for online pharmacies that sold controlled substances and prescription drugs to consumers without the need for a face-to-face meeting with, or physical examination or laboratory tests by, a physician.
According to the indictment, FedEx’s employees knew that online pharmacies and fulfillment pharmacies affiliated with both the Chhabra-Smoley organization and Superior Drugs were closed down by state and federal law enforcement agencies and that their owners, operators, pharmacists, and doctors were indicted, arrested and convicted of illegally distributing drugs. Nevertheless, FedEx continued to deliver controlled substances and prescription drugs for the Chhabra-Smoley organization and Superior Drugs.
“The advent of Internet pharmacies allowed the cheap and easy distribution of massive amounts of illegal prescription drugs to every corner of the United States, while allowing perpetrators to conceal their identities through the anonymity the Internet provides,” said U.S. Attorney Melinda Haag. “This indictment highlights the importance of holding corporations that knowingly enable illegal activity responsible for their role in aiding criminal behavior.”
“Pharmaceutical drug abuse is a serious problem affecting millions of consumers in the United States,” said DEA Special Agent in Charge Jay Fitzpatrick. “While DEA is committed to ensuring patients receive legitimate prescriptions, today’s action should send a strong message that corporations that participate in illegal activity risk investigation and prosecution.”
“Illegal Internet pharmacies rely on illicit Internet shipping and distribution practices. Without intermediaries, the online pharmacies that sell counterfeit and other illegal drugs are limited in the harm they can do to consumers,” said Philip J. Walsky, Acting Director, FDA’s Office of Criminal Investigations. “The FDA is hopeful that today’s action will continue to reinforce the message that the public’s health takes priority over a company’s profits.”
FedEx responded to the charges as follows:
…We have repeatedly requested that the government provide us a list of online pharmacies engaging in illegal activity. Whenever DEA provides us a list of pharmacies engaging in illegal activity, we will turn off shipping for those companies immediately. So far the government has declined to provide such a list.
FedEx transports more than 10 million packages a day. The privacy of our customers is essential to the core of our business. This privacy is now at risk, based on the charges by the Department of Justice related to the transportation of prescription medications.
We want to be clear what’s at stake here: the government is suggesting that FedEx assume criminal responsibility for the legality of the contents of the millions of packages that we pick up and deliver every day. We are a transportation company – we are not law enforcement. We have no interest in violating the privacy of our customers. We continue to stand ready and willing to support and assist law enforcement. We cannot, however, do the job of law enforcement ourselves.
Both UPS and Google settled their investigations relating to online pharmacy business, $40 million (2013) and $500 million (2011) respectively. UPS established an Online Pharmacy Compliance Officer pursuant to its settlement with the DEA and DOJ. The Google investigation had its origins in a separate, multimillion dollar financial fraud investigation unrelated to Google, the main target of which fled to Mexico. While a fugitive, he began to advertise the unlawful sale of drugs through Google’s AdWords program. After being apprehended in Mexico and returned to the United States by the U.S. Secret Service, he began cooperating with law enforcement and provided information about his use of the AdWords program. During the ensuing investigation of Google, the government established a number of undercover websites for the purpose of advertising the unlawful sale of controlled and non-controlled substances through Google’s AdWords program.
LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries, is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation. As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.
Posted in Financial Crimes, Money Laundering | Leave a Comment »
Posted by William Byrnes on July 18, 2014
FATCA expert Haydon Perryman’s 3rd GATCAst is out. <– Link to his GATCA blog to listen to the webcast ….
Posted in FATCA | Tagged: FATCA | Leave a Comment »
Posted by William Byrnes on July 18, 2014
On July 
18, 2014, Davis Polk LLC released its special Dodd-Frank Progress Report to mark the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Progress Report concluded that a total of 280 Dodd-Frank rulemaking requirement deadlines have passed. Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules.
In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.
Contents of Davis Polk’s Dodd Frank Progress Report
o Dodd-Frank Rulemaking Progress by Agency
o Title VII Progress on Required Rulemakings
o Dodd-Frank Rulemaking Progress on Passed Deadlines
o Dodd-Frank Rulemaking Progress in Select Categories
o Dodd-Frank Rulemaking Progress by Due Date
o Dodd-Frank Statutory Deadlines for Required Rulemakings
o Dodd-Frank Study Progress by Due Date
o Dodd-Frank Statutory Deadlines for Required Studies
o Tasks for Swap Dealers and Major Swap Participants
Posted in Compliance, Financial, Wealth Management | Tagged: Davis Polk, Dodd-Frank, Wall Street Reform Act | Leave a Comment »
Posted by William Byrnes on July 18, 2014
On July 15, 2014 FBME Bank, a $2 billion asset size Tanzanian institution that conducts 90% of its business and holds 90% of its assets in Cyprus, has been named by FINCEN as a foreign financial institution of “primary money laundering concern” pursuant to Section 311 of the USA PATRIOT Act. FINCEN proposes to prohibit US financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME, effectively shutting FBME out of the US financial system.
What is FBME Bank?
FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., a subsidiary of the private Lebanese bank, Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab.
Who Regulates FBME Bank?
FBME, via its Cypriot branches, are licensed and regulated by the Cyprus Central Bank. According to a Wall Street Journal report of March 4, 2013, FBME acquired €240 million of Cypriot government junk bonds at the height of the 2011 Cypriot financial crisis, representing 13% of FBME’s balance sheet. In 2012, on the day of Parliament’s announcement of the Cyprus financial system bailout WJS noted, FBME coincidently moved its headquarters to Cyprus and applied for a full banking license that would allow it EU wide distribution.
18 months later, in November 2013, the Cyprus Central Bank stated that FBME may be subject to sanctions and a fine of up to €240 million for alleged violations of Cypriot capital controls put in place with the bailout. But FINCEN pointed out that in just the year from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term “surge” wire activity, structuring, and high-risk business customers. FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013.
What Money Laundering Is FBME Allegedly Involved With ?
FINCEN alleges:
What actions are the Cyprus Central Bank taking in regard to these transactions, and in general as regards the allegations of wide spread money laundering by FBME? For a detailed look at Cyprus AML controls, see Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus of April 24, 2013.
Update of July 19: Yesterday, the Cypriot Central Bank took control of FMBE’s Cypriot branch operations. FMBE, denying the FINCEN allegations, responded as follows:
FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the Bank’s services are indeed in compliance with applicable AML rules of the Central Bank of Cyprus and the European Union.
FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations.
FBME Bank continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.
This academic looks forward to FBME making available the detailed assessment of the leading international accountancy firm that FBME’s side of the story may be known.
What Did FINCEN Announce About FBME?
Director Jennifer Shasky Calvery stated in FINCEN’s July 17, 2014 announcement:
“FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance business from the darkest corners of the criminal underworld.” … “Unfortunately, this business plan has been far too successful. But today’s action, effectively shutting FBME off from the U.S. financial system, is a necessary step to disrupt the bank’s efforts and send the message that the United States will not stand by while financial institutions help those who intend to harm or threaten Americans.”
In its Notice of Finding, FINCEN stated “FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system.”
FINCEN Proposes Shutting FBME Out of US Financial System
In its Notice of Proposed Rulemaking, FINCEN states that it intends to impose the fifth, special measure allowed by Section 311 of the USA PATRIOT Act (“Section 311”). FINCEN’s Director has the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of “primary money laundering concern,” to require domestic financial institutions and financial agencies to take certain “special measures” to address the primary money laundering concern.
The fifth special measure would prohibit covered financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME Currently, only one U.S. covered financial institution maintains an account for FBME. FINCEN’s fifth measure entails as follows:
Covered financial institutions also would be required to take reasonable steps to apply special due diligence .. to all of their correspondent accounts to help ensure that no such account is being used to provide services to FBME. For direct correspondent relationships, this would involve a minimal burden in transmitting a one-time notice to certain foreign correspondent account holders concerning the prohibition on processing transactions involving FBME through the U.S. correspondent account.
U.S. financial institutions generally apply some level of screening and, when required, conduct some level of reporting of their transactions and accounts, often through the use of commercially-available software such as that used for compliance with the economic sanctions programs administered by the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury and to detect potential suspicious activity. To ensure that U.S. financial institutions are not being used unwittingly to process payments for or on behalf of FBME, directly or indirectly, some additional burden will be incurred by U.S. financial institutions to be vigilant in their suspicious activity monitoring procedures. …
A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to FBME:
Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for or on behalf of FBME Bank Ltd. The regulations also require us to notify you that you may not provide FBME Bank Ltd. or any of its subsidiaries with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving FBME Bank Ltd. or any of its subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account.
The special due diligence would also include implementing risk-based procedures designed to identify any use of correspondent accounts to process transactions involving FBME. A covered financial institution would be expected to apply an appropriate screening mechanism to identify a funds transfer order that on its face listed FBME as the financial institution of the originator or beneficiary, or otherwise referenced FBME in a manner detectable under the financial institution’s normal screening mechanisms. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by OFAC.
A covered financial institution would also be required to implement risk-based procedures to identify indirect use of its correspondent accounts, including through methods used to hide the beneficial owner of a transaction. Specifically, FinCEN is concerned that FBME may attempt to disguise its transactions by relying on types of payments and accounts that would not explicitly identify FBME as an involved party. A financial institution may develop a suspicion of such misuse based on other information in its possession, patterns of transactions, or any other method available to it based on its existing systems. Under the proposed rule, a covered financial institution that suspects or has reason to suspect use of a correspondent account to process transactions involving FBME must take all appropriate steps to attempt to verify and prevent such use, …
LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries, is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation. As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.
Posted in Compliance, Money Laundering | Tagged: Bank Secrecy Act, correspondent account, Cyprus, FBME, Money Laundering, Patriot Act | 8 Comments »
Posted by William Byrnes on July 18, 2014
On June 16, 2014 the OECD Council approved the contents of the 2014 Update to the OECD Model Tax Convention. The OECD stated that this update will be incorporated in a revised version of the Model Tax Convention that will be published in the next few months.
The 2014 Update includes the changes to Article 26 and its Commentary that were approved by the OECD Council on July 17, 2012. It also includes the final version of a number of changes that were previously released for comments through the following discussion drafts:
The 2014 Update does not include any results from the ongoing work on the BEPS Action Plan. Moreover, the 2014 Update does not include the changes included in the discussion draft of November 15, 2013 on Proposed changes to the provisions dealing with the operation of ships and aircraft in international traffic (except for a change to the Introduction); as indicated in that discussion draft, further work is needed with respect to these changes before they are included in the OECD Model Tax Convention. The 2014 Update also does not include any of the changes put forward in the discussion draft of October 19, 2012 on Revised proposals concerning the interpretation and application of Article 5 (Permanent Establishment); since it is expected that work on Action 7 (Prevent the Artificial Avoidance of PE Status) of the BEPS Action Plan will result in changes to Article 5, the proposed Commentary changes included in that discussion draft will not be finalised until the work on Action 7 has been completed.
See http://www.oecd.org/tax/treaties/2014-update-model-tax-convention.htm
Posted in OECD | Tagged: BEPS, DTA, Model tax treaty, OECD, Tax treaty | Leave a Comment »
Posted by William Byrnes on July 18, 2014
Disclosures and Amount Recovered Thus Far by OVDI from Non-Compliant Taxpayers
On June 18, 2014, IRS Commissioner John Koskinen disclosed that the 2009, 2011, and ongoing 2012 OVDIs have generated more than 45,000 disclosures and the collection of about $6.5 billion in taxes, interest and penalties. Thus, on its face, the OVDIs look to be batting an average of approximately 9,000 taxpayers a year with approximately $1.3 billion revenue.
However, at the beginning of the year it was reported that (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date. The past 6 months only generating 2,000 additional disclosures and $500 million additional revenue may lead one to speculate that the OVDI, at least for high net wealth disclosures, is petering out. Regarding the 2012 IRS Streamlined OVD program, the Taxpayer Advocate found that as of September 2013, 2,990 taxpayers submitted returns reporting only an additional $3.8 million in taxes.
Substantial Money Laundering Penalties – But Not Tax Collection
The substantial majority of the $6.5 billion OVDI revenue is FBAR penalty, not tax collection and not tax penalty.
In the July 16, 2014 report, the Taxpayer Advocate found that the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly 6x the tax on their unreported income. Among unrepresented taxpayers with small accounts it was nearly 8x the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about 3x their unreported tax.
GAO-13-318, Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion
| Table 2: Selected Penalty Information for 2009 OVDP Individual Taxpayers with Closed Cases as of November 29, 2012 | |||||||
| 10th percentile | 25th percentile | Median | 75th percentile | 90th percentile | |||
| Offshore account(s) balance | $78,315 | $190,365 | $568,735 | $1,595,805 | $4,054,505 | ||
| 2009 OVDP penalty | $13,320 | $35,670 | $107,949 | $310,476 | $793,166 | ||
| Additional tax owed, tax years 2003-2008 | $103 | $1,661 | $12,748 | $60,449 | $190,399 | ||
| Interest, tax years 2003-2008 |
$52 | 482 | 3,486 | 17,398 | 57,129 | ||
| Other penalties | 84 | 605 | 3,457 | 14,290 | 45,163 | ||
| Total penalties, interest and taxes | $2,318 | $22,120 | $95,982 | $330,185 | $923,300 | ||
| Source: GAO analysis of IRS’s Enforcement Revenue Information System (ERIS) and Individual Returns Transaction File. | |||||||
In her January 9, 2014 report, the Taxpayer Advocate previously found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due! The median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances. The GAO Report of 2013 found that for small accounts of less than $100,000 that over a six year period had only an average of $103 tax owing ($17 a year additional tax revenue), the IRS imposed a FBAR penalty of $13,320 (i.e. $2,220 a year FBAR penalty on average for $17 dollar tax understatement, in additional to the tax penalty and interest). The 25% percentile paid on average a $5,945 FBAR penalty for an average annual $277 tax understatement. The median paid a FBAR penalty $17,991 a year for $2,125 a year understatement.
When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70% of the unpaid tax and interest. Given the harsh treatment the IRS applied to benign actors, the Taxpayer Advocate reported that non-compliant taxpayers have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process. Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.
Have These Efforts Substantially Increased Taxpayer Compliance?
The Taxpayer Advocate, replying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012 (see Report Volume 1, Page 229). The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater). Thus, currently, less than 10% of taxpayers with FBAR filing requirements are probably compliant.
The Taxpayer Advocate noted that “more than one million U.S. citizens reside in Mexico and many Mexican citizens reside in the U.S.” The Report pointed out that most persons that worked in Mexico had to pay into a government mandated retirement account (known as an AFORES), and that this retirement account may be reportable to the IRS as a foreign trust.
The GAO reviewed the 2009 OVDP and found that some immigrants stated in their 2009 OVDP applications that they were unaware of their FBAR filing requirements. The GAO found that the immigrants had opened banks accounts in their home country prior to immigrating. The GAO Report revealed:
IRS officials from the Offshore Compliance Initiative office stated that although there are several FBAR education programs, none are specifically targeted at new immigrants. These officials stated that one of the challenges that they face in their office, which is part of IRS’s Large Business and International Division, is that taxpayer education and outreach is the responsibility of IRS’s Wage and Investment Division and that issues concerning FBARs fall under IRS’s Small Business/Self-Employed Division.
The IRS reported to the Taxpayer Advocate that its FY2014 FBAR Communication Strategy includes efforts to reach U.S. citizens residing abroad via Internet, social media, and collaboration with the State Department.
The IRS also responded as follows (excerpted):
Congress enacted both the Title 31 and the Title 26 provisions regarding the reporting requirements of the FBAR … and Form 8938 (Statement of Specified Foreign Financial Assets). Reporting on the FBAR is required for law enforcement purposes under the Bank Secrecy Act, as well as for purposes of tax administration. As a consequence, different policy considerations apply to Form 8938 and FBAR reporting. These are reflected in the different categories of persons required to file Form 8938 and the FBAR, the different filing thresholds for Form 8938 and FBAR reporting, and the different assets (and accompanying information) required to be reported on each form. Although certain information may be reported on both Form 8938 and the FBAR, the information required by the forms is not identical in all cases, and reflects the different rules, key definitions (for example, “financial account”), and reporting requirements applicable to Form 8938 and FBAR reporting.
These differing policy considerations were recognized by Congress during the passage of the HIRE Act and the enactment of Section 6038D. Congress’s intention to retain FBAR reporting requirements, notwithstanding the enactment of section 6038D, was specifically noted in the Technical Explanation of the Revenue Provisions Contained in Senate Amendment 3310, the “Hiring Incentives To Restore Employment Act,” …
The Technical Explanation states that “[n]othing in this provision [section 511 of the HIRE Act enacting new section 6038D] is intended as a substitute for compliance with the FBAR reporting requirements, which are unchanged by this provision.” (Technical Explanation at p. 60.) …
How Much Tax Revenue Did Congress Expect
The Senate Permanent Subcommittee on Investigations issued a report March 4, 2009 entitled “Tax Haven Banks and U.S. Tax Compliance.” This report examined how tax haven banks facilitate tax evasion by U.S. clients that cost U.S. taxpayers an estimated “$100 billion each year”. This Report has been widely cited as authority for the claim that $100 billion is lost in taxes because of evasion of tax through tax havens.
However, the reports citation for this $100 billion figure is only its footnote 1 that cites five magazine articles unsubstantiated information, that also varied widely in terms of opinions regarding the amount of tax losses the U.S. incurs. The five articles mentioned as the foundation for the $100 billion amount do not refer to any empirical study, do not provide any empirical evidence, and do not provide any statistical methodology.
IRS Commissioner Charles Shulman, in testifying before the Permanent Subcommittee on Investigations on March 4, 2009, was questioned on the analysis of hidden money criminally held overseas:
Senator McCaskell: “Has there been any analysis done of how much of this money that is being hidden overseas is, in fact, a result of criminal activity?”
Mr. Shulman: “Not that I am aware of. I mean, estimating how much money that is overseas and not being paid to the government. As far as I am aware, there is no credible estimate because it is kind of a chicken and egg. It is over there and we have not found it, it is hard to estimate what is there. And all estimates that I have seen have not broken down criminal versus civil because, again, until we see the cases, it is hard to say.”
In the February 25, 2014 175-page bipartisan staff report the Senate Subcommittee increased the $100 billion to $150 billion. “Contributing to that annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150 billion each year.” To justify the reporting of this $150 billion a year of lost tax revenue due to “offshore tax schemes”, the Senate Report cites its previous investigatory reports supported by third party articles that refer to transfer pricing issues, not to studies about individual taxpayer offshore noncompliance.
Relative to the reported figure of $150 billion, the additional OVDI tax collection of approximately $500 million a year is just .003% (a third of one percent) of the goal. The FBAR money laundering penalties prop up the overall collection amount, but it’s a drop in the bucket of the Senate estimate.
How Much Did the Congressional Joint Committee on Tax Estimate FATCA Will Bring in Annually?
The Congressional Joint Committee on Tax estimated that FATCA will only generate $8.7 billion over ten years or average revenue $870 million per year. The $870 million annually appears not too far out of line with the tax collections generated by the OVDI the past six years, albeit the compliance costs to global industry to prepare for FATCA is currently estimated near this same amount based on government reports from the UK, Canada, Spain, among other trade partners of the US.
The Florida Bankers Association reported to Fitch that $60 billion and $100 billion in foreign deposits are held in Florida banks, close to 20% of the state’s total deposits. In 2012, Fitch estimated that a substantial portion of these deposits would NOT expatriate from Florida. But according to the Texas Bankers Association, FATCA has resulted in an outflow of $500 million of deposits from the Texas banking system already.
Based on a rate of the 15% long terms capital gain that applies to that money over the past six look-back years of Statute of Limitation, the currently cited $150B of lost annual tax revenue would require $1 trillion of annual taxable (hidden) income. To generate $1 trillion of capital gains income at a 5% rate of return requires $20 trillion of “noncompliant” offshore dollars. Is it likely that noncompliant money represents almost double the M2 money supply (Federal Reserve data of March 6, 2014 about $11T, see http://www.federalreserve.gov/releases/h6/current/) and about 20 times the actual amount of paper dollars that are in circulation?
Fifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives – one voice crafted by the primary author William Byrnes.
Posted in FATCA | Tagged: FATCA, FBAR, Offshore Voluntary Disclosure, OVDI | 1 Comment »
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